NFL Subsidies are a Losing Investment for Tax Payers

Now that the Super Bowl is over, media commentators are using a laundry list of words to describe the event, none of which includes “expensive for taxpayers”. This has spurred at least one lawmaker to skewer NFL Commissioner Roger Goodell for the tax-free status enjoyed by the NFL. Congressman Jason Chaffetz has a point: the IRS classification of the NFL as “non-profit” is laughable. The NFL and professional sports leagues are a temple for underhanded corporate welfare and cronyism.

In a 21 year span, 55 stadiums were constructed costing $87 billion in direct costs, 57% of which was financed by the tax payer. In economist terms, tax payers financed 57% of the capital expansion costs for sports teams. By some estimates, public share of stadium costs range from 58 percent to 63 percent. Capital investment is generally positive for an economy, but is that the case with stadiums?

The argument favoring subsidies is best described as a “multiplier effect”. These investments supposedly create new consumer spending which causes a ripple effect of job creation. This overlooks the basic economics that all capital investment has a multiplier effect of some kind. If this argument justifies exorbitant spending, then should the government start subsidizing capital expansion for other business? Of course not, nor is there evidence that this holds true with stadiums.

Assuming a stadium creates an avenue for consumer spending, is it a significant gain? Economists consider sports to be entertainment, so any consumer spending resulting via a new stadium is simply redirected from a substitute. Thus, there is little evidence that new stadiums boost employment or economic growth from resulting consumer spending. They may actually create a net loss on employment when considering projects foregone with the capital investment.

Proponents of stadium subsidies claim that the investment encourages tourists to visit the city, presumably for the sporting event. Surely, the 54 million people who visited New York City in 2013 did so with little concern for their sporting venues. While that might be a narrow case, economic studies show that a relatively small percentage of out of town attendees are there specifically for the game, but rather for business or family.

The outputs from these subsidies do not measure up. More importantly for the taxpayer are the inputs used to fulfill these obligations. Many of the short term requirements are financed by lottery and excise taxes, which disproportionately affect the poor. Even if this is not the entire source, cities will have to either cut services or raise taxes at some point. They cannot simply continue to issue bonds and accrue debt, especially considering the measly returns.

If these projects are feasible, the wealthy owners should have no trouble financing the project. These are not organizations struggling to turn a profit. It would be a worthwhile capital investment had government not deemed itself a monopoly investor. When government subsidizes a stadium project, there is an expected return on economic growth and job creation, not just capital. Conversely, private money expects a return only on their capital.

There is a long road ahead to getting government out of the subsidizing business. They are politically profitable and the general population seems to have a cognitive dissonance perspective. These subsidies promote the monopoly of professional sports leagues and create a barrier to market entry. If consumers want lower prices, removing these barriers will increase supply and competitive forces will lower prices. Professional sport leagues could be a technical monopoly by nature, but that should be for the free market to decide.

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