Latest / The Fiscal Policy Podcast with Fexingo: Government Budgets, Stimulus, and Public Spending / How the Federal Government Funds Sports Stadiums
Transcript
- Lucas: You know that shiny new stadium your local NFL team just opened? The one with the retractable roof and the premium club seats? Luna: The one that cost a billion-plus dollars and everyone argued about whether it was worth it? Yeah, I'm familiar. Lucas: Right. Well here's the part most people don't realize — the federal government is quietly picking up part of the tab. Not through a direct check, but through something called tax-exempt municipal bonds. Luna: Okay, hold on. Municipal bonds are how cities build schools and bridges. Are you telling me they're being used to build stadiums for billion-dollar private franchises? Lucas: Exactly. And it's completely legal. Here's how it works: a city or state issues bonds to finance a new stadium. The interest those bonds pay is exempt from federal income tax. So investors accept a lower interest rate because they don't have to pay taxes on it. The team or the local government gets cheaper financing. But the U.S. Treasury loses out on tax revenue. Luna: So the federal government is subsidizing the lower interest rate. How much are we talking? Lucas: A study from the Brookings Institution estimated that between 2000 and 2020, tax-exempt bonds for professional sports facilities cost the federal government roughly three point three billion dollars in lost revenue. That's about three hundred million a year. Luna: Three hundred million a year. Just in tax breaks for stadiums. For teams that are privately owned and often worth billions. Lucas: The loophole dates back to the Tax Reform Act of 1986. That law generally stopped the use of tax-exempt bonds for private activities — but it carved out an exception for professional sports facilities. The idea was that stadiums provide a public benefit: they create jobs, attract tourism, boost local pride. Luna: But the evidence on those benefits is pretty weak, right? Lucas: Weak is generous. Study after study shows that new stadiums don't meaningfully increase local economic growth. They shift spending from one part of town to another, but they don't create much net new activity. And the jobs they create are mostly low-wage, seasonal, and part-time. Luna: So the public benefit argument doesn't really hold up. Meanwhile, the private benefit to team owners is huge. Lucas: Huge is right. Take the example of the Atlanta Braves' Truist Park. The Cobb-Marietta Coliseum Authority issued three hundred million dollars in tax-exempt bonds. The Braves, which are owned by Liberty Media, a publicly traded company, got a brand new stadium with below-market financing. The federal government effectively subsidized that. Luna: And the team made that money back pretty quickly. I remember reading that the Braves' franchise value jumped by something like fifty percent after the move. Lucas: Exactly. The stadium increased the value of the team. But the cost of the subsidy was borne by federal taxpayers, many of whom don't even follow baseball. Luna: So who's pushing back on this? Has anyone tried to close the loophole? Lucas: There have been several attempts. In 2017, Senator Cory Booker and Senator James Lankford introduced a bill called the No Tax Subsidies for Stadiums Act. It would have ended the federal tax exemption for bonds used to finance professional sports facilities. It didn't pass. Luna: And more recently? Lucas: In 2023, a similar bill was reintroduced, but it stalled. The politics are complicated. Local officials love stadium deals because they get to cut a ribbon and claim they brought a team to town. Team owners lobby hard to keep the subsidy. And most voters don't know about the federal piece — they just see the local fight over whether to spend city money on a stadium. Luna: It's kind of a perfect stealth subsidy. It doesn't show up as a line item in any budget, so no one has to defend it. Lucas: That's exactly it. The Congressional Budget Office scores it as a tax expenditure, but it's not as visible as a direct appropriation. And because the bonds are issued by local governments, the federal role is hidden. Luna: What about the total size of the market? How much stadium debt is outstanding? Lucas: According to a report from the Government Accountability Office, as of 2021, there were roughly thirteen point five billion dollars in outstanding tax-exempt bonds for professional sports facilities across the country. That's a lot of debt that the federal government is indirectly subsidizing. Luna: And that number only covers bonds that are still outstanding. Over time, the total subsidy is even larger. Lucas: Right. And it's not just the big four leagues — NFL, MLB, NBA, NHL. It also applies to minor league baseball, soccer stadiums, even auto racing tracks. If there's a professional sports team, the bond financing can qualify. Luna: Are there any arguments in favor of keeping the subsidy? I mean, beyond the weak economic development claim. Lucas: Some people argue that without the federal subsidy, teams would demand even larger direct subsidies from local governments. So in a way, the federal tax break reduces the burden on cities. But that's a pretty thin argument — it assumes the local subsidy would be dollar for dollar, which isn't necessarily true. Luna: And there's also the fairness question. Why should taxpayers in, say, rural Montana be subsidizing a stadium in Atlanta? Lucas: Exactly. The benefits of a stadium are hyperlocal — they mostly go to the team owner, the players, and maybe some local businesses. But the cost of the tax break is spread across every federal taxpayer. It's a textbook case of a regressive subsidy. Luna: So what would it take to actually close this loophole? Lucas: It would require a change in the tax code. That means Congress has to act. The simplest approach would be to amend Section 141 of the Internal Revenue Code, which defines what counts as a private activity bond. If professional sports facilities were explicitly excluded, the subsidy would end. Luna: But with the current gridlock, that seems unlikely. Lucas: It does. But there's some hope. The bipartisan interest in deficit reduction might eventually make these tax expenditures targets. Every few years, a bill gets introduced, and the conversation gets a little more attention. Luna: I think people are also becoming more aware. There's been more reporting on how much teams get from taxpayers. Lucas: If today's episode helped clarify that picture for you, that's exactly the point. And it's why we keep these conversations ad-free. If you found this useful, the way we keep going is through listener support at buy me a coffee dot com slash fexingo. That's one way to help us keep digging into topics like this. Luna: Yeah, it's a small way to make sure these stories stay accessible to everyone. No paywall, just good information. Lucas: So back to the stadiums. One interesting twist is that some teams have actually started to finance stadiums with taxable bonds voluntarily. For example, the Golden State Warriors' Chase Center in San Francisco was financed entirely with private funds and taxable bonds. The team didn't use the tax-exempt loophole. Luna: That's a huge departure. Why would they do that? Lucas: They wanted full control over the design and revenue, and they didn't want to deal with the public oversight that comes with municipal bonds. Plus, they had the financial backing to do it. It shows that the subsidy isn't strictly necessary — it's just a convenient perk. Luna: So maybe the model is shifting. If more teams follow that path, the federal subsidy might naturally shrink. Lucas: That's one possibility. But as long as tax-exempt bonds remain on the table, most teams will take them. It's free money, effectively. And that's ultimately the problem — it's a subsidy that flows to some of the wealthiest individuals and corporations in the country, at the expense of ordinary taxpayers. Luna: It's one of those policies that seems like a good idea in theory but falls apart under scrutiny. Lucas: Exactly. And the scrutiny is long overdue.