Introduction
Practically, a tax is the most important instrument of fiscal policy and arguably, the most important aspect of public policy. For starters, tax influences the amount of money a government has to spend, as well as the amount the government needs to borrow in case of a difference between tax receipts and planned government expenditure (Pragyandeepa, 2015). The scarcity of resources, including the limits on the amount of taxes collected, influences the choices of spending by a government in the provision of services and public goods. In that vein, governments are always under pressure to have a sound prioritization of expenditure elements, and tax-payers are always keen to see a prudent use of funds. As expected, spending on some items can raise concerns from disgruntled individuals and civic organizations. For instance, using taxes to subsidize the building of football stadiums can bring up questions on the commitment of local governments to invest in vital areas like health, infrastructure and education. The affluence in sports, especially in the last thirty years, has shifted the understanding of professional sport from a public necessity to a business venture (Stadiumsofprofootball.com, 2016). For example, since the turn of the century, the cheapest professional stadium, the Heinz Field that hosts Pittsburgh Steelers, was built at a cost of $281 million. On the other hand, the most expensive one, the MetLife Stadium used by the New York Giants, cost a whopping $1.6 billion, over 40% of the total revenues collected by South Dakota State in 2010 (United States Census Bureau, 2010). This paper evaluates the pros and cons of using local state tax base to subsidize the building of National Football League stadiums.
Literature Review
Carlino and Coulson (2004), in a Journal article on the Business Review in 2004, dug into the issue of professional football teams and their contribution to the economy of a state. Professional teams improve the quality of life of residents in a city where the team plays. Traditionally, the benefits of an NFL stadium were gauged on the number of job opportunities created by the teams and the level of wages paid to the workers who got those jobs. However, Carlino et al notes that having a team in the city makes residents look forward to the newspaper headlines with delight and expectations of having a homegrown team (Carlino & Coulson, 2004).
Comparing rent paid on stadiums with the amount spent on local government to construct the facilities, Carlino and Coulson found out that, on average, state governments spend more on constructing sports facilities than the money they get from renting those facilities to football teams. Drawing a comparison to the funds dedicated to education, the research reveals that the opportunity cost of building a stadium equals that of hiring 333 teachers into the school system. However, recent economic models have insisted on putting a figure on the economic impact of the stadium and the intangible benefits like supporting a local team and enjoying the game time.
Fast forward ten years and the debate on stadium subsidies has gone to a new high. The overall revenues from NFL crossed the $10 billion mark in 2015 amid an increased popularity and addition of twenty stadiums at a cost of $4.7 billion to the state governments (Isidore, 2015). NFL teams are listed in the not-for-profit category, a classification that helps them to avoid taking responsibility. Also, these teams keep all the profits despite the amounts of investments made using taxpayers' money.
In January 2016, St Louis Rams moved to Los Angeles leaving a cost for Missouri and St Louis taxpayers, as the St Louis stadium was built with subsidies that keep costing the local government $12 million dollars every year (RT International, 2016). The lack of prior protection of the position of the local government on the funds spent in building the stadium has exposed taxpayers to losses, as subsidies to NFL teams hit an all-time high. The flow of billions of money into NFL made it the most profitable sport in America and heaved more questions on the continued support with public funds.
With an average operating margin of 22%, NFL teams do not need support from the government (The Economist, 2016). Part of the difficult is the NFL board and the rules of the game. For instance, the number of teams that can play in the league is fixed. Billionaires use this loophole to extort money from local governments by threatening to move cities. St Louis Rams moved to Los Angeles, the only top city that did not have a team in the NFL, and the efforts by the St Louis government to offer $477 million for the construction of a new stadium fell on deaf ears of the millionaire owner (The Economist, 2016).
Pros and Cons
Pros
Football is a recreation support, both for players and fans. Having a team in a city contributes to the general well-being and the quality of life for residents. Therefore, spending tax payers money to build a stadium is a worth investment, as it affects the culture of the city. Using experience and data from Europe, it can is seen that sports give a city a form of identity and history for many years. In Spain, for example, Madrid and Barcelona cities are known more for their sporting giants than other reasons, and many people travel every weekend from all over the world to watch the teams play. The feeling of pride and belonging to a city may not be easily quantified in economic terms, but that does not mean that it is worthless.
Another advantage of spending on NFL team stadium is the revenues that come from rent paid by teams. While data shows that local governments have spent more money on average than the rent earned from the teams, it should be understood that every investment has a break-even point, beyond which expenses become less than revenues. There will be depreciation expense (as local governments are required to depreciate stadiums in the balance sheets. Another cost will be maintenance and payments to staff, but if club owners are pushed to pay more in rent, local governments can reap big from the stadiums.
Football is just gaining a following in America as compared to Europe and South America. As a multibillion dollar industry, it requires the support of government and the corporate. That means that expenditures in building stadiums contribute directly to the perception of the sport, and it consideration as a career for young people. Creating opportunities for future generations is one of the primary jobs for governments, either local or federal. In that regard, therefore, investment in football promotes the spectrum of sport as an important career choice and a sign of city unity.
Lastly, spending on NFL stadiums increases the attractiveness of a city. Football lovers all over the world like to live in towns with football vibrancy. In an era where the world is becoming a global village, increasingly, global citizens will be willing to pay the extra cost to live in a ‘football city'. That means that the dollars allocated by local governments in the development of sports infrastructure will have benefits to a city in the long-term.
Cons
NFL teams do not need government money to build football stadiums. With an average profit margin of 22% and millions of revenue, the teams should be left to look for private funding to build stadiums. In the case of St Lois Rams and their movement to LA from St Louis, for example, it is apparent that the burden that was placed on the shoulders of taxpayers of $12 million a year was not necessary. Some billionaires are willing to spend that money on the teams, and this should be a point of reprieve for local governments as they can concentrate on providing other services to the dwellers in those cities.
Cost-benefit analysis of building a football stadium reveals that it is a bad investment. The little control that local governments have on the management of the football teams renders at the mercy of the NFL and club managers. That the government cannot set the prices of tickets means that they have no control of the investment. The loophole also makes the clubs take all the profits despite using local government financed facilities. Football does not qualify for a pure public good; therefore, the involvement of a local government in financing is not necessary.
Some billionaires buy football clubs with an intention of enforcing their personal policies and dreams. They have little regard for the community and the government in that city where the team plays. Enos Stanley Kroenke, for example, bought St Louis Rams and moved it to Los Angeles, despite efforts from the St Louis local government to stop the move. This type of uncertainty is a risk factor for local governments. It makes the investment unattractive and exposes the taxpayers to future financial burdens in an event of a hostile takeover.
Conclusion
Spending public resources should be based on the needs of the taxpayers. That means that local governments should put in place strong policy committees to deliberate on the use of public funds with public interests in mind. In the case of financing the construction of football stadiums, the governments should weigh the decisions against alternative investments and the impact that will have on the community and the city. Fiscal policy depends on taxes, and it should be so, either in the collecting of the taxes or spending them.
References
Carlino, G. & Coulson, E. (2004). Should Cities Be Ready for Some Football? Assessing the Social Benefits of Hosting an NFL Team. Business Review, Q2 2004, 01-03.
Delaney, K. & Eckstein, R. (2003). Public dollars, private stadiums. New Brunswick, N.J.: Rutgers University Press.
Do billionaire NFL owners deserve subsidies from taxpayers?. (2016). RT International. Retrieved 12 May 2016, from https://www.rt.com/sport/330724-nfl-owners-subsidies- taxpayers/
Isidore, C. (2015). NFL gets billions in subsidies from U.S. taxpayers. CNNMoney. Retrieved 12 May 2016, from http://money.cnn.com/2015/01/30/news/companies/nfl-taxpayers/
NFL Stadium Comparisons, Stadiums of Pro Football. (2016). Stadiumsofprofootball.com. Retrieved 12 May 2016, from http://www.stadiumsofprofootball.com/comparisons.htm
Pragyandeepa, (2015). 5 Major Instruments of Fiscal Policy. Economics Discussion. Retrieved 12 May 2016, from http://www.economicsdiscussion.net/fiscal-policy/5-major- instruments-of-fiscal-policy/4696
Sacking the taxpayer. (2016). The Economist. Retrieved 12 May 2016, from http://www.economist.com/news/united-states/21688415-rams-move-los-angeles-does- not-mean-boondoggle-over-sacking-taxpayer
States Ranked by Revenue and Expenditure Total Amount and Per Capita. (2010). United States Census Bureau. Retrieved 12 May 2016, from http://States Ranked by Revenue and Expenditure Total Amount and Per Capita
