Latest / The Fiscal Policy Podcast with Fexingo: Government Budgets, Stimulus, and Public Spending / How Government Subsidies for Professional Sports Teams Actually Work
Transcript
- Lucas: So, we've talked a lot about government procurement and waste, but there's one area where the math is particularly strange: subsidies for professional sports stadiums. Luna: Yeah, those deals where cities build billion-dollar stadiums and the team gets most of the revenue. It's a classic case, but the numbers are still eye-popping. Lucas: Let's use a concrete example: the Las Vegas Raiders. Back in 2020, the team moved from Oakland to Las Vegas, and Nevada taxpayers put up about $750 million in public bonds for Allegiant Stadium. That's a lot of money. Luna: And the Raiders got a brand-new $2 billion dome. What was the promised return? Lucas: The typical pitch: construction jobs, permanent jobs, tourist spending, and a boost in tax revenue. The Nevada plan estimated about $1.5 billion in economic impact over 30 years. That sounds like a decent return on $750 million, right? Luna: But the academic research says otherwise. Most studies show a net zero or even negative effect on local economies. Lucas: Exactly. Economists like Roger Noll at Stanford and Andrew Zimbalist at Smith College have been studying this for decades. Their consensus: a new stadium typically doesn't increase a metro area's overall income or employment. It just shifts spending from other entertainment to the stadium. Luna: So it's substitution, not addition. If people go to a Raiders game instead of a movie or a restaurant, the net gain is close to zero. Lucas: Right. And the jobs argument is weak too. Stadiums create some part-time, seasonal jobs—concession stands, security—but not the kind of high-wage, stable employment that transforms a city. Meanwhile, the construction jobs are temporary. Luna: But the team owners make it sound like the city will miss out if they don't build. And they often threaten to move. Lucas: That's the leverage. The Raiders had moved from Oakland to LA and back. By 2016, Oakland was unwilling to fund a new stadium, so the team looked at Las Vegas. Nevada's legislature approved the $750 million bond, backed by a new hotel tax. The team then got a $650 million loan from the NFL, and private money covered the rest. Luna: And Oakland lost the Raiders. So the city that didn't pay got nothing. Lucas: That's the classic prisoner's dilemma. For a city, it's often better to pay than to lose the team, even if the economic benefits are minimal. Because the cost of losing the team—civic pride, media coverage—is politically painful. Luna: So the team owners capture the surplus. They get a stadium paid for by taxpayers, keep all the naming rights, ticket revenue, and parking. The city gets, what, some tax revenue from tickets and concessions? Lucas: And often not even that. Many stadium deals include tax exemptions or revenue-sharing clauses. In Las Vegas, the Raiders keep 100% of naming rights and ticket revenue, and the city gets a share of the hotel tax that funds the bond. But that hotel tax was already being used for other things before the stadium. Luna: So it's a shell game. They're taking money from one pot and calling it new revenue. Lucas: Precisely. And the bond payments themselves—principal plus interest—cost about $50 million a year. The hotel tax generates about that much. So the whole thing breaks even on paper. But that hotel tax could have gone to other public goods: schools, roads, health care. Luna: Opportunity cost. The $750 million could have been used for something else with a higher return. Lucas: Right. A study by the Brookings Institution found that public spending on stadiums has a negative return on investment when you account for the opportunity cost. They estimated that a typical stadium subsidy costs taxpayers about $12 per person per year, and the economic benefits are statistically indistinguishable from zero. Luna: So why do cities keep doing it? Is it just political pressure from team owners? Lucas: Partly. There's also the 'big project' mentality. Politicians love cutting a ribbon on a shiny new stadium. It's tangible, photogenic, and the benefits are concentrated on a small group—team owners, construction unions, local media—while the costs are spread across millions of taxpayers. That's a textbook case of concentrated benefits and diffuse costs. Luna: And the diffuse costs mean no one votes based on it, while the concentrated benefits mean the team's lobby is powerful. Lucas: Exactly. And there's a competitive dynamic between cities. If one city offers a subsidy, another city feels pressure to match. The IMF actually studied this and found that stadium subsidies create a 'race to the bottom' where cities overbid for teams. Luna: So it's a classic market failure. The team has monopsony power over the city's desire for a team. Lucas: Right. And the federal government even facilitates this. Tax-exempt municipal bonds are often used to fund stadiums, which costs the federal treasury in lost tax revenue. A 2019 study estimated that the federal government loses about $3.7 billion over the life of a typical stadium bond. Luna: So not only do local taxpayers pay, but federal taxpayers also subsidize the subsidy. Lucas: Yes. And there's a reform idea: eliminate the tax exemption for stadium bonds. That would make cities think twice. But it keeps getting proposed and never passes, partly because of lobbying. Luna: What about the arguments that stadiums create intangible benefits? Civic pride, national exposure, that kind of thing? Lucas: Those are real, but they're hard to quantify. And often they're oversold. For instance, economists who studied the Super Bowl's impact on host cities found that the actual spending boost is much smaller than the NFL claims. Usually, it's less than $100 million, while the costs of hosting can be higher. Luna: And that's a one-time event. A stadium is a permanent cost. Lucas: Exactly. So when you look at the evidence, the case for government subsidies for professional sports stadiums is very weak. Yet they persist. It's a fascinating case study in public choice theory. Luna: Speaking of public choice, I think a lot of our listeners appreciate that we dig into these topics without any commercial interruptions. Lucas: Yeah, we deliberately keep this show ad-free. If you find value in walking through the economy with us, and you want to support that choice, the link is buy me a coffee dot com slash fexingo. It's a simple way to help us keep doing what we do. Luna: Absolutely. Every bit helps us avoid the need for ads. Now, back to stadiums—one more thing that's interesting is how some cities have started to push back. Lucas: Right. For example, after the Raiders deal, Nevada's legislature put a cap on future stadium subsidies. But that cap has loopholes. And cities like Oakland and San Diego have lost teams rather than pay up. So it's not inevitable. Luna: At the end of the day, it's a question of priorities. Do we want to spend public money on entertainment venues, or on things like infrastructure and education? Lucas: And that's the fundamental fiscal policy question. The stadium subsidy debate is a microcosm of a larger issue: how governments make decisions when benefits are concentrated and costs are diffuse. It's a reminder that good policy requires looking at the evidence, not just the ribbon-cutting. Luna: Well said. Next time you're at a game, maybe think about what it actually cost to build that place.