Earlier this week, while driving to work as usual I had my radio tuned to KPCC, the public radio station out of Pasadena, and there was a feature on the moves being made to bring an NFL team to Los Angeles. The central focus of the story was the impact of sports stadiums and the teams that play in them have on the economies of their civic hosts.
"There are a lot of things economists disagree about, but the economic impact of sports stadiums is not one of them." That is how the KPCC story began, and I have to admit I figured that it must mean the consensus was that stadiums and professional sports teams brought financial rewards to their cities.
“If you ever had a consensus in economics, this would be it," said Michael Leeds, a sports economist at Temple University. "There is no impact."
Wait. What?
Leeds studied Chicago – as big a sports town as there is – with five major teams.
“If every sports team in Chicago were to suddenly disappear, the impact on the Chicago economy would be a fraction of 1 percent,” said Leeds.
Leeds pointed out that a major league baseball team has about the same economic impact as a small department store, and that is with 80 home games a year. An NFL team only plays eight home games in a season, unless they are a playoff team with home field advantage, in which case they could get one or two more.
Those of us who live in the greater Los Angeles area, once home to the mighty NFL Rams and Raiders, and for one season the Chargers, have been without an NFL team for about 20 years. Some of us are just fine with that. After all, we have the Lakers, Clippers and Sparks, the Angels and Dodgers; we have the Ducks, Kings and the MLS Galaxy. But many other Angelinos, politicians, developers and business leaders, including basketball legend and sports icon, Magic Johnson, consider an NFL team both a matter of civic pride and an irresistible economic opportunity and are working hard to lure a team to our sprawling metropolis.
As there are three NFL franchises with a connection to the Los Angeles area, the Raiders, the Rams and the Chargers, whose stadium leases expired this year, the fully inflated football franchise tree appears ripe for the picking. The burning questions on the minds of many are which team(s) will it be and where in the L.A. will they play?--or will the city be disappointed as Lucy pulls the proverbial football away from Charlie Brown once again?
There is still the stadium issue here, but the most important green stuff is now in place — the Clippers' recent $2-billion purchase price has made the NFL owners understand this market's enormous financial potential. This realization has led a renewed effort to make a stadium deal happen either downtown, Hollywood Park, City of Industry, or even on Frank McCourt's parking lots — ouch! — in Dodger Stadium.
Like Magic said to Yahoo Sports, "I think for the first time, I truly believe we're going to get a team." http://www.latimes.com/...
The breaking news since I began writing this diary is that the Raiders and the Chargers have announced they are working on deal to share a yet to be built stadium in Carson, about 18 miles outside of L.A. This is the leading story on most local news programs and the stories are full of happy Carson residents and local politicians smiling broadly and pronouncing their joyous support. Additionally, because one of the investors in the Inglewood property is the owner of the Rams, Stan Kroenke, who is planning to build a stadium there, it is not out the realm of possibility that there may soon be three NFL teams playing in the L.A. area.
This seems like a win for everyone. Los Angeles football fanatics get their gridiron pride back, their NFL mojo if you will, the league gets access to the nation's number two media market, and Los Angeles gets all the jobs, all that money pouring into the city and surrounding communities! Conventional wisdom would have it that major stadiums and the professional sports teams that play in them are an economic boon to their communities. All the pitches made by owners and developers of course include the positive economic impact the endeavor will have on their city.
If you build it, they will come … with wallets bulging, eager to exchange greenbacks for peanuts, popcorn, hot dogs and beer, and T-shirts and ball caps with team logos. And then there is all the business to be generated in sports bars and restaurants and the like.
At least that’s the theory embraced – time and time again – by mayors and city council members hoping to lure professional sports teams to their cities by promising to build new arenas for the teams. http://news.illinois.edu/...
Chris Meany, a senior executive with the joint venture designing and financing the project is leading the effort to build an Inglewood stadium site. Construction has already begun on the 238 acres permitted in 2009.
This summer, Meany hopes Inglewood voters will approve a ballot initiative to add a stadium on 60 more acres, but he stresses that it — and any NFL team — is only the cherry on top.
“We’re going to create something that is active 365 days a year,” he said. http://www.scpr.org/...
And according to Meany, no tax payer dollars will be used for the project. Wow! That's great. Where do we sign?
But wait, not so fast Mr. Meany. There are people here who are actually paying attention.
But a generation of Angelenos grew up without a local NFL team. Many scorn the idea of sapping public tax dollars for a return to pro football, whether that’s for rearranging roads or reallocating cops on game days.
Politicians, including L.A. Mayor Eric Garcetti, are listening to that constituency.
“The mayor is a fan and would love to see football here in L.A. But we do not support the use of city resources for stadium construction,” said Yusef Robb, Garcetti’s spokesman. “Any deal would have to make sense for our quality of life, our neighborhoods and our economy.” http://www.nbcnews.com/...
Ah, there are some key words: "quality of life" and "economy." But more on that later. What is this about "public tax dollars?" Remember Meany was boasting that no tax payer dollars would be used.
While the plan does not include any upfront tax money to build the 298-acre community of homes, offices and entertainment venues, a 187-page outline released by developers includes provisions for multimillion-dollar public paybacks to them over time from tax dollars generated by the project, which would cover costs ranging from installing street lights and fire hydrants to running shuttle buses and providing police security on game days.
The documents submitted to officials in Inglewood, where the stadium would be built, say that if annual tax revenue to the city from the completed project exceeds $25 million as expected, the developers, including a company controlled by the owner of the St. Louis Rams, would be entitled to reimbursements for funds they invested in streets, sewers, parks and other projects deemed dedicated to the public.http://news.yahoo.com/...
"Entitled to reimbursements"--sweet! But those reimbursements are coming from tax revenue which means tax payers would actually be contributing to the project, on the back end, rather than up front when they could see to what they were agreeing before a vote.
Chicago-based sports finance consultant Marc Ganis said claiming no tax money would be used in the project is "hyper-spin" and could damage the project's credibility.
"It's not an outright lie ... but there will be people who think it is," Ganis said. "They might be prospective tax dollars, and it might make sense for Inglewood to contribute them to the project, but they are tax dollars." (Yahoo)
So if you have made it this far, you might be inclined to follow below the fold for the point of this whole piece, how sports stadiums and the teams that play in them actually do nothing for the economy of their civic hosts, and why the NFL, and some other professional leagues are subsidized by us.
http://news.illinois.edu/...
http://www.humankinetics.com/...
http://www.scpr.org/...
http://www.todayifoundout.com/...
http://www.nytimes.com/...
First there is this interesting bit of information.
Inglewood commissioned an economic analysis of that city’s stadium plan that will be presented to the city council next month. Developers of the project – which they call City of Champions – have promised hundreds of millions of dollars in economic activity, but Victor Matheson, a sports economist at College of the Holy Cross, is dubious.
“A good rule of thumb that economists use is to take what stadium boosters are telling you and move that one decimal place to the left, and that’s usually a good estimate of what you’re going to get,” Matheson said.
Economists say that sports teams just don't spur much if any new spending in the community. The money residents might spend at a football or basketball game comes from their already limited entertainment budget and therefore takes away from what they might have spent going out to dinner or another business where the money would stay in the community. When the stadium simply displaces spending that would have occurred otherwise, no net benefits are generated.
An analysis on the Staples Center commissioned in 2003 showed that economic activity actually increased in Inglewood when the Lakers moved out of town to the Staples Center in L.A. partly because all the crowds, traffic, noise and congestion of game days tended to keep people away from other events and activities.
That is, sales tax revenue went up when the Lakers and Kings moved to Staples Center in 1999.
“A case can be made for the fact that a cause and effect relationship exists between the loss of professional sports and a spike upward in the rate of economic growth for the City of Inglewood,” the report said.
Chris Meany, of course, disagrees.
“To argue that Inglewood is better off because downtown L.A. took the Lakers and Kings is to stretch credulity,” said Meany.
Studies and other scientific analysis do not support Meany's position. Brad Humphreys, a professor of recreation, sport and tourism at the University of Illinois at Urbana-Champaign and colleague Dennis Coates, a professor of economics at the University of Maryland, Baltimore County, studied the issue closely and could not uncover a single instance in which the presence of a professional sports team was responsible for a boost in the local economy.
"Our conclusion, and that of nearly all academic economists studying this issue, is that professional sports generally have little, if any, positive effect on a city’s economy,” Humphreys and Coates wrote in a report issued in 2004 by the Cato Institute in Washington, D.C. (news.illinois.edu).
The professors based their report on new data as well as previously published research in which they analyzed economic indicators from 37 major metropolitan areas with major-league baseball, football and basketball teams.
“The net economic impact of professional sports in Washington, D.C., and the 36 other cities that hosted professional sports teams over nearly 30 years, was a reduction in real per capita income over the entire metropolitan area,” Humphreys and Coates noted in the report.
They also found a significant reduction in local retail and services sectors with an average net loss of about 1900 jobs. There was an increase in wages in the hotels and other lodgings sector (about $10 per worker year), but this was contrasted by a disproportionate reduction in wages in bars and restaurants (about $162 per worker per year).
Those employed in the amusements and recreation sector appeared, at first glance, to benefit significantly from the presence of a pro team, with an average annual salary increase of $490 per worker, Humphreys said. However, he added, “this sector includes the professional athletes whose annual salaries certainly raise the average salary in this sector by an enormous amount. As it turns out, those workers most closely connected with the sports environment who were not professional athletes saw little improvement in their earnings as a result of the local professional sports environment.”
The NFL is the highest grossing sports league in the world, with revenue of close to $10 billion last season. And Commissioner Goodell, whose 2014 salary was $45 million, has set a goal of $25 billion in revenue by 2027. Knowing also that professional sports teams and their stadiums bring no economic benefit to their communities begs the question: why are the NFL and other leagues like the NHL, PGA and the USTA given tax exempt 501(c) (6) status? And why do state and local governments and taxpayers continue to subsidize them with bonds and reimbursements?
How could the NFL — which helps negotiate billions in media and promotion deals for its member teams and which itself reported an operating profit of more than $9 million and $326 million in “program service revenue” — be given nonprofit tax-exempt status?
According to the filing, the NFL claims its tax exemption under section 501c(6). The IRS regulations define eligible 501c(6) organizations as the following:
Business leagues
Chambers of commerce
Real estate boards
Boards of trade
Professional football leagues
http://blogs.reuters.com/...
The actual reason the NFL is tax exempt in the first place is complicated, and I am sure there are many other people who can explain it better than I.
The NFL League Office was established as a trade organization back in 1942, qualifying them for tax-exempt status. Even after 23 years the league was still struggling financially and was acting to save money and protect the players when it applied for non-profit status with the IRS. The application was apparently approved but "both the NFL and IRS have said that they can not find a copy of the original 1942 application." http://www.todayifoundout.com/...
A generation later, in 1966 the NFL and its upstart competitor the AFL announced a merger. To avoid antitrust laws, Congressional approval was required, and so a deal was cut with then powerful Louisiana Senator and Finance Committee Chairman Russell Long and Commissioner Pete Rozelle that ensured exemption from sanctions in exchange for New Orleans getting the next NFL expansion Franchise. The merger passed and the Saints became the next NFL franchise. With that 1966 statute the league's non-profit status was essentially "grandfathered" in because, regardless of its size, power and entrepreneurial activities, they administered the player's pension fund.
The N.F.L.’s eligibility for 501 (c)(6) status is not based on its characteristics but was instead set by Congress in 1966 when Public Law 89-800 passed, redefining tax-exempt organizations in section 501(c)(6) of the tax code to include “professional football leagues.” The problem with that redefinition is that unlike a trade association, the N.F.L. promotes a league made up of 32 teams (or owners) and controls television contracts, licensing fees and other joint activities in which the member teams participate and from which they profit significantly.
The teams pay taxes, but the dues they pay to support the N.F.L.’s front office are not taxed. According to the N.F.L.’s 990 filing (required of all nonprofits), the total collected in “dues and assessments” and “coach/club fines” was $326.8 million in 2012. http://www.nytimes.com/....
The Joint Committee on Taxation estimates the 10-year cost of this practice to be approximately a surprisingly low $109 million to the taxpayer. Meanwhile, other professional sports operate and thrive without the trade association status: The National Basketball Association never claimed to be a 501(c)(6) and Major League Baseball abandoned the status years ago. While I'm not qualified to determine if the estimate of tax income is realistic, but the figure is less than I would think. Even if it is an accurate number, that doesn't make it right. With conservatives in Congress talking about cutting Social Security and other benefits to the disabled and poor every little bit helps. $109 mil is $109 mil. Additionally it would seem that the NFL's non-profit status certainly provides leverage in negotiations with municipalities desperate for a team in their city.
If your not convinced that the NFL's 501(c)(6) status is a sham here are a few more points of interest.
The league reported $1,276,000 in lobbying expenses, plus another $7,139,000 in fees to Covington & Burling, the powerhouse Washington law firm (on top of $9,030,000 to Paul Weiss, Rifkind, Wharton & Garrison, its New York firm). That’s a lot of money being thrown around in Washington. What issues was the money spent on?
In addition to Goodell’s $44-million paycheck, the league’s “executive vice president for media,” Steve Bornstein, took home $26 million, and general counsel Jeff Pash received $7,862,000.
That is an unusually high salary for a general counsel — let alone one working for a “nonprofit.” It might be a good hook for a story reviewing the NFL’s multi-front legal problems — from head injury litigation, to disciplining players accused of domestic violence, to maintaining the status of that tax exemption.
In all three cases, most of the money the executives received was listed as bonus compensation — $40 million for Goodell, about $23 million for Bornstein and $4.8 million out of $7.8 million for the general counsel. In light of the league’s current troubles, a reporter — or a member of Congress at a hearing — ought to ask the league owners who set these executives’ compensation, what the bonus criteria have been and whether they will now be changed to reflect the league’s obvious need to worry about issues other than money. (Reuters)
I was listening to people complain today about their tax dollars going to subsidize childcare for working poor in California and couldn't help but wonder what kind of people resist supporting a working mother in need of a little help, but have no problem subsidizing the most successful sports league in the world? In an ironic twist, it is Oklahoma Senator, Tom Coburn (R), who is targeting the NFL's tax exemption.
Professional sports are a part of American culture, and NFL Football is clearly the most popular of those sports. It is completely understandable that Angelinos are pumped up about the prospects of one, two or even three teams calling Los Angeles home. Professional sports can promote a shared sense of community and create a lot of civic pride, and they undoubtedly generate a large sum for their leagues, owners, players and coaches, just not for their host cities. So people need to understand the economic realities when getting on the "build it and they will come" bandwagon.
So once again I have taken a bit of news and expanded it into a rambling diary. If you made it to the end you are to be commended. Thanks for reading.