In the Sports-Subsidy Game, Taxpayers Always Lose

Few events unite our diverse country and bring people together like sports. No matter where we are from, which team we root for, or even if we don’t care about the game itself, the highlights of Sunday’s Super Bowl match-up will soon become part of our cultural lexicon and the shared American experience. Because of its role in maintaining our national identity, people may think of professional athletics like a common good, worthy of public investment. But, as personally meaningful and enjoyable as the big game may be, neither football nor any other professional sport is a public service: they are all for-profit enterprises that generate billions in private wealth for franchise owners.

This Sunday, we will watch athletes who earn an average annual salary of nearly $3 million compete to become champion of a league that makes more than $14 billion a year in revenue – in between commercials that cost $5 million for 30 seconds of airtime.

Big league sports do not need to be subsidized by taxpayers.

Yet, in addition to the $56 billion fans voluntarily spend on sports each year, taxpayers fork over an average of $260 million per stadium. Over the past two decades, the four major sports leagues (NFL, NBA, MLB, NHL) have collected almost $20 billion in taxpayer money for stadiums. Nearly half that money, about $7 billion, went just to football stadiums built since 1997.

Stadiums projects and the money needed to fund them typically are deeply unpopular with voters. Rather than suffer the political consequences of losing a home team (the underlying threat in such debates), many lawmakers desperately search for enticements: generating funds through indirect means like land grants, subsidized loans, tax breaks, and tax-exempt municipal bonds. Because the interest earned on these bonds is not taxed as income, the federal government and, thus the American people, lose out on an additional $4 billion.

Even when teams supposedly bear the upfront costs, it is the public that ends up footing the bill in the end. For example, while the owners of the Yankees and Mets used $1.7 billion in private funds to construct new stadiums they opened in 2009, taxpayers actually ended up paying a combined $1.8 billion to the teams from government breaks on taxes and leasing costs.

Leagues also lobby for other handouts ultimately paid by taxpayers. A recent example comes from the National Basketball Association, which has argued that if sports betting is legalized in the U.S., the NBA ought to get 30 percent of the betting revenue through a tax on sports books (the businesses that take bets on sporting events). The tax would, of course, come from consumers and taxpayers in the form of smaller payouts to winners and less tax revenue collected by the state. The proposal is particularly audacious since it was the NBA, along with the other major sports leagues, that pushed Congress to enact the national sports betting prohibition in the first place. Sports leagues have lobbied for nearly 25 years to keep the $140 billion and $400 billion market for sports betting illegal, blocking states from collecting billions in tax revenue.

The industry argues public investment in sports creates greater economic benefits than costs, through job creation and increased consumer spending. But this “broken stadium fallacy” is a myth. A 2015 study from economist Dennis Coates of the University of Maryland found that when it comes to stadium projects, they not only fail to generate promised economic benefits to communities but also appear to negatively affect income, wage and salary disbursements, and wages per job, on top of all the direct and hidden costs paid to subsidize their construction.

Besides franchise owners, the main beneficiaries of sports subsides are big shots in the political business. Sports leagues and associations spend hundreds of millions of dollars every year on lobbyist fees and donations to key lawmakers who, in turn, support subsidies for sports. The arrangement is mutually beneficial for both the industry and politicians. Both collect heaps of cash and, as most consumers don’t see how much of their money government is spending to subsidize sports, there is little-to-no loss of public good will: everybody wins. That is, everybody but the taxpayers they are fleecing.

Originally published to InsideSources.