Like many other Canadians, I was watching the CFL playoffs last weekend. It wasn’t really by choice, I was over at a friend’s house and he had it on. I think the CFL is kind of a crummy league compared to its American cousin, but I have to admit the Eastern Final was a heck of a football game. But, since you don’t come here to read about football, let me switch the topic to a financial one: subsidizing millionaires .
My buddy and I were discussing the plight of his favorite team, the Saskatchewan Roughriders. Instead of focusing on their on field performance, we started talking about their need for a new stadium. It turns out that Taylor Field is pretty old, it’s been around since 1910, obviously not in its current form. They’ve done renovations over the years, increasing the seating capacity to approximately 30,000 people. However, the facility is old, and located in a sketchy part of town. Naturally, the team is working with the local government to build a new facility.
Just how much will a new stadium cost? Well, luckily for us snoopy types, the Winnipeg Blue Bombers are building their own new stadium, which is expected to be ready for the 2012 season. Their stadium is slated to cost $190 million dollars. The football team and the University of Manitoba are contributing $85 million, while various levels of governments are responsible for the rest. Yep, if you’re a taxpayer in Winnipeg, you shelled out your small part of over $100 million towards building a new stadium.
This is where this post starts to get interesting. I think that, in today’s age of government deficits, uncertain economic times, unfunded future liabilities and the like, the last thing governments should be doing is contributing millions of dollars to subsidize millionaire sports owners. It’s a poor use of taxpayer dollars. And this is coming from a huge sports fan.
Governments typically don’t have tens of millions of dollars just sitting around for huge projects like this, especially local ones. So, just like you or I, they have to borrow to fund this type of expenditure. Instead of going to the bank though, they go to the bond market, hitting up a bunch of investors to all chip in a little, in exchange for periodic interest payments. It’s pretty much exactly like your mortgage, but instead of paying it gradually back, they just pay the interest, with the amount owing due in full at some point in the future. This means that, over the time of 15 or 20 years, the interest cost can actually surpass the cost of the original loan. Suddenly, a $100 million loan ends up costing in excess of $200 million.
Governments will always be quick to point out the economic benefits of building the new stadium, arguments that are easily dismissed with just a bit of independent thought. Yes, local people will spend cash going to sports games. This cash stimulates the local economy in some way, since the team employs people, uses local contractors, etc. But, people are surprisingly flexible with their entertainment dollars. Meaning, if the team wasn’t there to support, they’d simply spend that money on another form of entertainment. Increases in tourism numbers are often overstated too, since there’s almost no way to strip out pure sports tourism from tourism that would have happened anyway. Besides, often the local government (who always ends up the owner of the facility) will often lease it back to the team at a very attractive rate, hence negating the increase in revenues.
Even athletes aren’t guaranteed to spend even the majority of their pay cheques locally. If you were a journeyman athlete who had to move each year to get a bit role on a team, would you really uproot your family every year? I sure wouldn’t.
One has to look no further than Kansas City to see how building a new stadium can go horribly wrong for a community. Completed in 2007, The Sprint Center was supposed to be the last piece of the puzzle for luring a NHL or NBA franchise to Missouri, which is a really odd state to have a city named Kansas City. As any sports fan knows, Kansas City is still waiting for a team to use the stadium. The project was funded by the local government, and the interest on the debt is being paid back from a special tax on local hotel rooms and rental cars. If you build it, it doesn’t mean they’ll come, no matter what Field of Dreams told you. $276 million is a lot to pay for a facility to have the occasional concert and NCAA basketball game. If it’s any consolation, I’m sure it’s an environmentally sensitive building.
I understand the need for these large venues. Let’s just stop subsidizing them if they aren’t providing the general public something tangible.