The Perverse Economics of Stadium Funding

It's Time to Stop Public Money for Sports Stadiums

Take a good look at the two pictures above. The one on the right is of the newly updated LSU football locker rooms. Pretty sweet huh! Nothing but the best for a team competing for the National Championship every year. This was paid by football boosters, revenue from football television contracts, and yes, from the college, meaning public funding was included to it.

The picture on the left is of the library at the same college.

So millions were spent for the benefit of less than a hundred at a public university, and meanwhile the library, which is for the benefit of all, is falling apart. I can think of nothing that demonstrates the perverse incentive structures with public funding for sports venues than this example right here.

Economic Calamity

Sadly, this makes perfect logical sense when you think about it. College Athletics helps provide universities with an identity (Go [Random Mascot]!), they generate millions (or billions if the school is large enough) that goes to the school to fund all sorts of other programs, they spur alumni fundraising and they are exceptional at getting potential students to consider paying the tuition to go there. It also supplements business in the community, helping bring revenue to restaurants, hotels, clubs and corporations who use the tickets as a perk. It makes complete sense that a college would sponsor a sport that generates that kind of revenue.

Libraries on the other hand don’t. They are money pits that are intended for the common good. Everyone tends to acknowledge the benefit of libraries, and there is a great need for libraries. Schools and colleges in particular practically require a library for research and classes. However, to fund libraries that means sinking donations, user fees or public funding into an endeavor with no hope of return on investment. Public funding means taxes, and seldom do the words “increasing taxes for a library” amounts to a positive result. People would rather pay for a capitalist model sports team than a socialist model library.

The incentive structures are even more perverse when we get into the area of publicly subsidizing construction for professional sports stadiums.

Nobody Wants to be the Next Cleveland

Michael Jordan is largely considered the greatest professional basketball player of all time. Few regard him as the greatest franchise owner or business mind. Michael Jordan bought a stake in the Charlotte Hornets in 2010 for $275 million. He recently announced that he was selling that stake for $3 billion. Why the huge increase? Demand for ownership of sports franchises is through the roof, and part of it has to do with the ability to make huge amounts of money on new publicly subsidized stadiums, not just on the stadium property but on peripheral properties as well.

For this feat of economic hostage taking we can thank Art Modell, former owner of the Cleveland Browns. In 1995, he did the unthinkable. The city of Cleveland had already spent a ton of money to create a new stadium for the then Indians MLB baseball team and for the new Rock and Roll Hall of Fame. They were tapped out when Modell wanted a new football stadium. Although they put up a respectable offer, it was not enough for Modell. He picked up and moved the team to Baltimore, turning them into the Ravens.¹

Baltimore gave him a new stadium, huge tax incentives and a bigger market to make more money than Cleveland offered. Modell, being a businessman took advantage. Cleveland on the other hand was devastated. Economically, it was a punch to the gut of a big sports city. The Browns were a beloved NFL franchise with a history. The city lost out on large amounts of revenue and downtown Cleveland suffered. The city eventually was granted an expansion team in 1999, but the damage still continues to reverberate in Cleveland.

However, for enterprising sports franchise owners, it quickly became apparent that to extract greater concessions in public funding for stadiums, all they had to do was threaten relocation. There are plenty of large cities that would love to have a franchise. Threatening to move often greased the wheels towards ensuring enough public funds go to the stadium. No team wants to be the next Cleveland.

As a result, the cost, extravagance² and value of public funds for private stadiums has skyrocketed. In 1995, the average cost of a new stadium was $300 million, with roughly 1/3 of that subsidized. The Raiders recently opened their new stadium in Las Vegas (the reason they left Oakland) which cost nearly $2 billion, almost all of it subsidized. The new ownership group of the Washington Commanders are looking at something close to $3 billion for a new stadium.

In addition, the owner receives benefit from the value of the stadium he can leverage for other ventures; the city and state, who often give up tax revenues as part of the deal to make ownership happy do not.

Turns out giving money to billionaires is not such a great investment.

Where the Damage Really Is

Try to get state and local voters to spend $1 billion on anything. Its nearly impossible. Infrastructure? Schools? Utilities? Conservation? Seriously, its not going to happen. Welfare? Don’t make me laugh— Brett Favre was involved in a scheme to take welfare money to build a Volleyball Court at his daughter’s college in Mississippi, and public sentiment in his state was on his side. Public services and projects are all things that benefit the community. None of it is flashy, but they’re public necessities that are required for a society to function at a basic level. Yeah, that includes libraries.

Yet, more and more voters seem OK with approving ballot measures that secure money for billionaires to build stadiums. If it isn’t brought to the voters, they have no issue sending back to the legislature those elected officials who approve of them.

In 2002, the Detroit Lions opened Ford Field, at a cost to taxpayers of $500 million. In 2009 it was revealed the city of Flint, MI had toxic levels of lead in its water system. In 2016, it was estimated that to fix the pipes in Flint would cost $80 million.

Flint still doesn’t have clean water. The Lions are angling to get taxpayer support for a new stadium costing close to $2 billion (which will likely pass). Meanwhile their old stadium, the Pontiac Silverdome, which was considered the most modern stadium when it opened in 1976, hosted World Cup and Super Bowl games, played its last game in 2002 (only 26 years after opening), sold at auction in 2009 for $500k, hosts flea markets in its parking lot, was finally demolished in 2018 and is still being considered for development by Amazon.

PurpleAmerica’s Obscure Fact of the Day

Franchise owners are notoriously secretive about how much everything costs to them. Most of them are privately owned, which means they don’t have to reveal actual financials to the public. In most modern sports leagues, it is a requirement that the franchise be privately held for that purpose. ³

There is one notable exception: The Green Bay Packers. The organization has been a publicly owned non-profit organization since 1923⁴, when Curly Lambeau turned over ownership to the City of Green Bay. The corporation is governed by a seven-member executive committee, elected from among the board of directors. The committee directs corporate management, approves major capital expenditures, establishes board policy, and monitors performance of management in conducting the business and affairs of the corporation. The corporation currently has approximately 537,460 stockholders, who collectively own approximately 5,200,000 shares of stock following the sixth stock sale in 2021. There have been six stock sales, in 1923, 1935, 1950, 1997, 2011, and 2021. Shares in 1923 sold for $5 apiece (approximately $75 in 2020 dollars), while in 1997 they were sold at $200 each, $250 each in 2011, and $300 each in 2021. Stock is non-voting, non-transferable and cannot be resold making it relatively worthless, and the proceeds of which can only go toward capital expenditures, such as stadium improvements.

Because it is publicly held, the Packers have to publicly disclose financials. Every year in July or August, at Lambeau Field, there is a shareholders meeting where anyone owning Green Bay Packer stock may attend.⁵ It’s through this meeting where the ONLY regular insight (other than disclosures when a franchise sells or when litigation requires them to disclose it) into the costs of running an NFL franchise can be estimated and calculated.

PurpleAmerica’s Cultural Corner

How has public ownership inhibited the Green Bay Packers organization? It hasn’t.

The Packers have 13 World Championships, more than any other team, which includes 4 Super Bowls. They are the only team to win three straight titles, having done it twice (‘29, ‘30, ‘31 and ‘65, ‘66 and ‘67).

Oh, and the name on the Super Bowl trophy is from the coach, Packer’s legend Vince Lombardi.

Green Bay is the smallest market in all major sports, and has one of the nation’s largest fan bases (actually, its a worldwide brand). It’s logo alone is the 21st most valuable in the world (among all sports franchises) with an estimated worth of $1.98 billion.

And the other teams mentioned in this article:

The Ravens have done OK. They were sold by the Modell family in 2004 for $600 million. They are currently worth $3.9 billion.

Here’s a list of every Browns starting QB from 1999 through 2021. You can add two more to this list since then.

The Lions and the Browns both remain two of only four teams never to appear in a Super Bowl. In fact, since 2000, the two teams with the worst records are the Lions and the Browns.

PurpleAmerica’s Final Word on the Subject

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Footnotes and Fun Stuff

1. Cleveland retained the rights for the Browns name which Modell was happy to part with. Baltimore named the team the Ravens in honor of famous Baltimorean Edgar Allen Poe, who’s eponymous poem is one of the greatest pieces of American poetry. Bonus here— what do you call a group of Ravens? An “unkindness.” That’s pretty fitting for what Modell did to Cleveland.

2. For this, you can thank Jerry Jones. After he purchased the flailing Dallas Cowboys in the late 1980s and revamped the team, he went about securing the first $1 billion stadium. Nicknamed “the Taj Ma-Jerry” it has become the standard for architecture of new stadiums, which emulate its style and structure.

3. This rule came about in the 1980s for the NFL, which stipulated no more than 32 owners per team, and at least one had to have a 30% stake in the franchise. Other leagues adopted the same criteria.

4. Since the Packers were already publicly owned at the time of the private ownership requirement, they were grandfathered into the ownership rules.

5. It’s actually open to the public. They don’t have time to check to make sure you are an owner.