Cities fall prey to the "seen vs unseen" dynamic in lavishing giveaways to professional sports teams
Cato Institute argues that professional sports live in an environment of "false scarcity"-- the economic benefits of which accrue to the wealthy sports team owners, while the rest of us pay the many unseen costs for fear of hypothetical lost benefits.
In case after case, subsidized sports venues are shown to be a very bad deal for the Americans forced to pay for them. And no amount of glitz and misdirection can change that fact.
And not to go all populist-pitchforky on you here, but it’s important to note that the recipients of this public largesse aren’t exactly paupers. According to Forbes, for example, as of 2023 the top 20 professional sports team owners on the Forbes 400 list of the world’s wealthiest people are worth a collective $382 billion, and “for most, the NFL, the NBA and MLB remain a very lucrative side hustle.”
The teams themselves are also, per Forbes, money-printing machines: “The world’s 50 most valuable sports teams are now worth a combined $256 billion (an average of $5.12 billion), 15% more than a year ago. And this year’s cutoff is higher than ever—$3.7 billion, or an increase of 19% from 2022.”
The teams’ and leagues’ various media and advertising contracts—broadcasting rights, stadium/arena naming rights, official sponsors, etc.—are similarly lucrative and, again, getting even more so: “Until the broadcast contract ended in 2013, the terrestrial television networks CBS, NBC, and Fox, as well as cable television’s ESPN, paid a combined total of US$20.4 billion to broadcast NFL games. From 2014 to 2022, the same networks paid $39.6 billion for exactly the same broadcast rights.” (Per the same article, the MLB and NBA have enjoyed similar gains; only the NHL has regressed—and, seriously, who really cares about hockey?)
Economics and hockey jokes aside, these are simply not people and organizations that need taxpayer help.
So, why do We keep doing it?
The ironclad case against subsidies raises the obvious question of why they persist. Here, I see two big reasons. First, there’s the aforementioned “seen versus unseen” dynamic. As Bastiat explained almost two centuries ago, most people recognize the visible benefits of government actions while ignoring their invisible costs. Thus, it’s perfectly natural (annoying, but natural) for voters to reward elected officials who provide subsidies that generate tangible and highly visible outputs—stadiums, arenas, and the like—while missing those same projects’ many hidden costs, especially opportunity costs like forgone tax revenue and lost economic activity. Research further shows that voters reward politicians for even trying to subsidize stuff (in the study’s case, corporate investment), so politicians have a strong incentive to do just that. And local sports fandom—passion for not just the team but the community to which it’s attached—surely amplifies many voters’ responses to subsidy plans. Superfans might not reward a politician for subsidizing some random company but probably will for the team they grew up cheering.
Second, stadium subsidies create a classic “collective action” problem for local governments forced to compete for intentionally scarce professional sports teams. (Here’s a recent example.) As Bradbury, et al note, “Strong consumer preferences for local franchises and the restriction of competitive alternatives provides owners the opportunity to pit host markets against each other to extract substantial subsidies from residents through relocation and relocation threats.” This creates a classic “Prisoner’s Dilemma” situation, in which two guilty prisoners being interrogated by the police would go free if they stayed silent, but, because each can’t be sure the other will keep his mouth shut, both end up confessing to minimize their jail time. Many economists and political scientists have applied this framework to corporate relocation incentives and two hypothetical legislatorsfrom different states. The optimal outcome for both would be to withhold subsidies, but because each legislator has no way of ensuring that the other will abstain and because one’s support of subsidies will make the abstaining politician lose votes/support, they both offer subsidies. Here’s the choice in chart form:
This dynamic is amplified by sports teams for reasons already mentioned. Urban studies guru Richard Florida explains:
The threat of moving a team puts cities and their mayors on the proverbial hot seat: They can either ante up the dough or watch their fan’s beloved team go elsewhere. As Stanford University’s Roger Noll, a leading expert on sports economics, points out: “Cities have very little bargaining power with an NFL team. As long as there are cities without NFL teams that are willing to subsidize a stadium, cities will have to pay part of the cost of a new stadium.” What mayor or council wants to be on the hook for that? Supporting billionaire owners may look bad, but sitting idly while the local team moves to another city can also mean getting tossed out of office.
Good luck breaking that dynamic, folks—no matter how truly awful the case against subsidies may be.
Read the whole thing here.
Follow Opportunity Now on Twitter @svopportunity
We prize letters from our thoughtful readers. Typed on a Smith Corona. Written in longhand on fine stationery. Scribbled on a napkin. Hey, even composed on email. Feel free to send your comments to us at opportunitynowsv@gmail.com or (snail mail) 1590 Calaveras Ave., SJ, CA 95126. Remember to be thoughtful and polite. We will post letters on an irregular basis on the main Opp Now site.