Cleveland, once known as “The Mistake by the Lake,” is enjoying something of a renaissance. Investment in the city’s downtown is up, and the number of young, college-educated people moving into the city has risen dramatically.
But Cleveland, like many northern industrial cities, is financially strapped and struggling economically. The job growth rate is zero, and the city’s poverty rate hovers near 37 percent. The infant mortality rate is an astoundingly high 13.0 per thousand births, compared to under four in New York City, which has plenty of poverty. Cleveland’s public schools have suffered repeated budget cuts.
Cleveland’s economic woes do not seem to bother the billionaire owners of Cleveland’s major sports franchises, as The New York Times recently pointed out. Dan Gilbert, owner of the NBA Cavaliers, Larry Dolan, owner of the American League Indians, and Jimmy Haslam, owner of the NFL Browns, cooperated to push through a referendum to extend a local “sin tax” on cigarettes, beer, and liquor. Over the next two decades, taxpayers in Cleveland and surrounding Cuyahoga County will pour $262 million into improving the three teams’ arenas and stadiums. The cash-strapped city has already pumped $800 million into those playing fields.
The revenue sharing does not go both ways. Cleveland’s sports owners — like their colleagues in other cities — are more than willing to dip into public funds for building and improving their arenas and stadiums, but they never offer to share the profits from their franchise ownership. When the Browns sold the naming rights to their stadium to FirstEnergy Corporation for $100 million, Haslam kept all the money. Similarly, Cleveland did not receive a penny from the $58 million Progressive Insurance is paying the Indians for plastering its name on the team’s ballpark. And Gilbert has retained all of the $67 million dollars of increased revenue the Cavaliers earned last year with the return of all-world LeBron James to Cleveland.
Cleveland is a case study in the economic theory of modern sports ownership: Socialization of costs, privatization of profits. It is a formula that has been used elsewhere. Wisconsin Governor Scott Walker — a conservative contender for the Republican Party presidential nomination who has proposed slashing state funding for the University Wisconsin by $300 million — wants to fork over $250 million in taxpayer funds to build a new arena for the NBA’s Milwaukee Bucks. The team has threatened to relocate if it does not get a new home by 2017. Super wealthy Dan Snyder wants one of the government entities in the Washington metro area — the District of Columbia, Virginia, or Maryland — to fund a new stadium for his NFL team, even though FedEx Field is only seventeen years old. (Snyder may have a hard sell, but not for economic reasons. Rather, his aversion to changing the team’s racist name may complicate public funding for a new stadium).
Franchise owners claim that their teams and new arenas generate economic development and tax revenue by encouraging local development. The evidence on this contention is murky, at best. The new Yankee Stadium, built across the street from its famed predecessor, used more than $1 billion in tax-free debt, coupled with hundreds of millions of dollars in public infrastructure investment, including a new commuter-rail stop. There has been little real estate development in the surrounding areas of the Bronx, which remain as poor as ever.
A number of academic studies have concluded that public financing of the venues for professional sports teams is often a bad investment that rarely lives up to the promises of team owners. One such paper published by the Federal Reserve Bank of St. Louis found “the rate of return a city or metropolitan area receives for its investment [in arenas and stadiums] is generally below that of alternative projects.” The authors of the paper found, “Cities and metro areas that have invested heavily in sports stadiums and arenas have, on average, experienced slower income growth than those that have not.”
President Obama, who as an Illinois state senator supported public financing of improvements at Soldiers Field, home of the NFL’s Chicago Bears, now believes spending public monies is a bad idea. His 2016 budget proposal called for barring the use of tax-exempt bonds to finance professional sports facilities. Such bonds, the Treasury Department points out, have raised a whopping $17 billion during the last three decades to fund stadiums and arenas around the United States. “Allowing tax-exempt governmental bond financing of stadiums transfers the benefits of tax-exempt financing to private professional sports teams because these private parties benefit from significant use of the facilities,” the Treasury Department wrote in its explanation of Obama’s budget request. “The current structuring of the governmental bonds to finance sports facilities has shifted more of the costs and risks from the private owners to local residents and taxpayers in general.”
Opposition from the Obama administration and academic studies questioning the effectiveness of public financing are not likely to deter the owners of sports franchises, who use public monies to leverage their private profits. It is part of what has become the new American way: Socialism for the rich, capitalism for the poor.