This article was published by The McAlvany Intelligence Advisor on Friday, November 24, 2017:
Here’s how the scam works. The owner of a football team seeking rents (economist’s term for taxpayer subsidies) says: “Pay for our new stadium because it will create economic growth and jobs. That will generate greater tax revenue, which will assure that the community comes out ahead in the end. Besides, it will be a ‘feather in the cap’ for your city to have us locate our team there.”
The cost of that “feather” turns out to be enormous, and often continues long after the team leaves for greener pastures elsewhere. Professor Michael Lees, chairman of Temple University’s Economics Department, said there is no net gain, thanks to the “substitution effect”: “NFL games have a huge substitution effect. That means [that] new money is not introduced into the economy but rather gets shifted around.” Translation: the presence of a brand new shiny and expensive NFL stadium doesn’t increase spending. It merely siphons away money that would have been spent on other forms of entertainment such as restaurant dining or theatre shows.
A look at how the taxpayers were hoodwinked into inflicting on themselves a half-percent sales tax to pay for the Paul Brown Stadium in Cincinnati in 1995 reveals the fraud. It began when owner Paul Brown of the Cincinnati Bengals threatened to move the team unless a new stadium was built. Conveniently, a study from the University of Cincinnati released at the same time showed that the Bengals added $77 million annually to the local economy.
After passing the tax increase and allowing the issuance of tax-exempt bonds to help build the $287 million stadium, reality set in. By the time the stadium opened in 2000, cost overruns had pushed the price tag to nearly $450 million. Whatever economic calculations that were made by the UC professors went out the window.
First, the estimated tax revenues from the tax increase fell below expectations. Second, the costs of maintaining the stadium – maintenance of the facility and the surrounding parking lots – skyrocketed. Projections now put the cost to the taxpayers of operating the Paul Brown Stadium at an eye-popping $1.1 billion over the next nine years. Missing from the calculation is the lost revenue from turning valuable land that could have been developed by for-profit enterprises into non-tax-generating parking lots.
But that was then. This is now: Las Vegas is bringing the hated Raiders from Oakland, but only on the condition that local taxpayers agree to help pay for a new stadium. The Nevada statehouse decided, however, that rather than inflict a sales tax on Las Vegans it would instead inflict the pain on visitors to Sin City by raising the hotel room tax. Once again, the idea is that outsiders who will flock to the city to see the Raiders play eight home games a year after the stadium is built will provide a stimulus to the local economy: a win-win all around.
But this defies economic logic: if the price of something goes up, less will be demanded. If the price of a hotel room in Las Vegas increases, tourist traffic will decline. It’s like the law of gravity: it cannot be repealed, only experienced!
But the boys in the back room in charge of marketing said that bringing a team like the Raiders to town will increase tourism despite the increase in the cost of a hotel room.
It was a slick sales job. One key assumption that was used to sell the $2 billion project is that 450,000 new visitors every year will trek to Las Vegas to see the Raiders play. And it was further assumed that each visitor will stay there an average of 3.2 nights each time they visit. In addition, it is assumed that at least a third of the tickets sold will go to tourists despite that fact that no other city with a football stadium manages to sell more than 10 percent to visitors from outside. Henry Graber, writing for Slate, asked the most important question: “Why [would] half a million people fly across the country to watch a team that no one wants to pay $20 to see in Oakland?”
Nevertheless, the city fathers, the bankers, and the taxpayers moved ahead with financing the building of the second most expensive football stadium in the country. The Bank of America is loaning $650 million, $500 million is coming from the Raiders, and the balance from the increase in the hotel room tax. What could go wrong?
Behind the scenes, the Bank of America was never part of the initial equation. Sheldon Adelson promised to pony up the $650 million, but backed out when his accountants – using real numbers, no doubt – told him he couldn’t count on getting even a two percent return on his money.
It’s no wonder that Stanford Economist Roger Noll looked at the numbers and said the Las Vegas/Raider stadium project is the “worst deal for a city” that he had ever seen.
There’s another way the American Taxpayer is subsidizing the NFL: by allowing the team owners to write off the cost of buying the team! Consisting of players’ salaries, the tax code allows team owners to depreciate his purchase price over 15 years. For Terry Pegula, the owner of the Buffalo Bills, that amounts to a $93 million tax deduction every year for the next 15 years. That’s $1.4 billion that he won’t have to pay taxes on until he sells the team at some distant time in the future. Immediately, however, the American taxpayer is forced to make up the difference.
The Brookings Institute put all the numbers together and reported that American taxpayers have subsidized the construction of stadiums to the tune of more than $3.2 billion since 2000. Another study showed a much higher number: closer to $7 billion.
That remains an open question. It could be that taxpayers are so economically ignorant that they buy the lie that there’s an economic “stimulus” coming, much like the tooth fairy. It could be that the cost is so small, so insignificant in the grand scheme of things, that it doesn’t matter. “It’s putting us on the map! Yah Hoo!” It could be that they really don’t care. Or it could be the phony “expert” credibility granted without thinking to people with fancy degrees: they know better than I do about all this. Let them decide.
To most people, the fact that they are directly and indirectly (to the tune of billions of dollars) funding the antics of infantile football players with big egos and large paychecks) isn’t obvious. That’s how team owners have learned how to game the system all these years and been successful in getting away with it.
New York Post: NFL owners have made millions off obscure tax break
Tax Connections: NFL Tax Breaks – And Tax Breaks Americans Dream About