Should Cities Buy Sports Teams Instead of Building their Stadiums?

As more and more professional sports franchises push their host cities to pay for their new stadiums – we may soon see a shift in local priorities with how they spend their money. Could this lead to cities buying teams themselves and reaping all of the benefits of owning a sports franchise?


 

Should cities simply take ownership of sports teams rather than bribing them to stay with stadium subsidies and tax credits?

In an op-ed for Vice Sports on Monday, Neil Demause argues that with the high cost and uncertain returns of stadium subsidies, it might be cheaper for cities to “skip the stadium and just buy the team.”

Demause cites the case of Washington, D.C., which approved a $183 million package of cash transfers and tax breaks earlier this month to help finance the construction of a new stadium for the D.C. United soccer team.

Not only was that “the largest public subsidy ever for an MLS team,” Demause points out, but “soccer stadiums have never been known to revitalize squat, anyway.” (RELATED: Berkeley’s New Stadium Put it $445 Million in Debt)

For context, investors “paid $30 million for 60 percent of the team two years ago, putting the valuation of the whole franchise at a then-MLS-record $50 million,” less than one-third of what D.C. spent just to build them a new stadium.

According to Demause, the city could have instead bought the entire team and its future revenues while having enough left over to keep 5,0000 residents out of homelessness.

Demause claimed D.C. is not an isolated case. He reported that Miami spent over $800 million for a new stadium for the Marlins, whose estimated value at the time was $277 million, and Glendale, Arizona spent $225 million on subsidies for the Coyotes last year, helping the new owners buy the team for $170 million.

Demause notes that the rationale for such subsidies is generally “to keep team owners from using their monopoly-given right to skip town,” and suggests that a superior approach would be to “cut out the middleman, and buy the team.” (RELATED: Illinois, Sweet Land of Stadium Subsidies)

Municipal ownership is common practice in Canada and Europe, but in the U.S., according to Big Think, the Green Bay Packers are the only major league team owned by a city-run nonprofit.

The fact that pro sports leagues have considerable discretion over ownership has made the public owning U.S. sports teams problematic, since the leagues have so far resisted every attempt at municipal control.

Although “no league is voluntarily going to allow its franchises to fall into public hands when it can keep on using its monopoly power over team ownership to extract subsidies,” Demause contends that it might be possible to force them to sell using the power of eminent domain. (RELATED: Study: ‘Virtually No Evidence’ Eminent Domain Increases Tax Revenue)

Demause acknowledges that eminent domain “doesn’t have a great rep,” because while it was originally intended to facilitate construction of roads and public buildings, it has since been expanded to support private developments.

Roger Noll, a Stanford economist who follows franchise relocations, told Demause that, “whether eminent domain would work probably varies from state to state and from judge to judge.”

In recent years, Noll added, “courts have become more skeptical of the use of eminent domain and so have narrowed its scope, but this use probably is still in the range of uncertainty.”

If courts endorsed the practice, taxpayers would still need to be concerned about both the ballooning values of pro sports teams and the possibility that courts will require them to “pay a premium in order to buy a team,” but Demause contends that the worst-case scenario would still be less costly than the average stadium subsidy.

Further, even if eminent domain is not actually used, Demause asserts that, “the mere threat [may be] enough to force the team owners to lower their subsidy demands.”

 

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