During a rare moment of sanity and deference to responsible management of taxpayer dollars, Washington’s City Council voted last week to amend Mayor Anthony A. Williams’ agreement with Major League Baseball to require private financing for 50 percent of the cost of any new stadium built in the District of Columbia.
Alas, that sentiment was reversed Tuesday when the council removed the requirement for the financing of the 41,000-seat stadium on the Anacostia riverfront, which was estimated to be up to $584 million.
Though last week’s amendment would have insisted on private financing for only half of the stadium’s construction costs, it signified a step in the right direction (if only temporarily), away from taxpayer subsidization of professional sports teams.
But the question remains: Why should a municipality subsidize a sports team’s costs (or any private enterprise’s, for that matter)?
The practice of municipal subsidization or ownership of sports and entertainment facilities, though not uncommon, is certainly a questionable “public interest” priority. As Councilman Adrian Fenty asserted, “We cannot in good conscience build a stadium, with all the problems we have in the District of Columbia. Where are the priorities of the government?”
D.C. does not own movie theaters, opera and playhouses or other entertainment venues. Why should things be any different for a baseball stadium?
It’s not as though there is no sound economic model or precedent for privately financed teams and venues.
Several major-league ballparks have been built with private money, including such famous and historic parks as Los Angeles’ Dodger Stadium, San Francisco’s SBC Park, Yankee Stadium, Boston’s Fenway Park and Chicago’s Wrigley Field. That doesn’t include facilities for other professional sports, such as the Washington Redskins’ FedEx Field in Landover.
While some have justified public “investments” in professional sports franchises on the grounds that they will stimulate the local economy, this is hardly the case. In order to assume economic growth from the mere presence of a sports franchise, one must also assume that people not only would spend money on events at the sports venue, but also would continue to spend just as much on other forms of entertainment.
This would be true only if everyone in Washington (or at least all of those who would spend money on entertainment) suddenly realized a jump in their incomes. In reality, people have a fixed amount of disposable income to spend on entertainment, so every dollar spent on tickets to a Nationals game is a dollar not spent on tickets to a concert, play, movie or other sporting event.
By taking more money from taxpayers (and thus reducing their disposable incomes) to subsidize sports owners, the government is stifling economic growth and supporting a project that may not have enough demand to sustain it. (Note the two previous failures of baseball in Washington.)
The advantage of privately financed stadiums is that they require the private owners and other financiers to bear the entire risk of the investment. Government subsidies create a “moral hazard” problem by removing a substantial amount of risk from the owners, thus encouraging especially risky and unwise investments that would not have been made had the owners been forced to put up their own money.
If there is a market for, say, a professional baseball team, and a savvy entrepreneur recognizes the opportunity, everyone wins: Consumers get a product they have been wanting and the owner makes a lot of money.
If there is not sufficient demand, yet the government subsidizes the investment anyway, there are few winners and many losers: A few consumers who really wanted the team may win, and the owner certainly wins big because he has put less of his money up in the first place. But the majority of taxpayers are big losers (particularly those who would not have paid to attend the games anyway).
Rather than benefiting sports team owners at the expense of taxpayers, Washington should stay out of the sports and entertainment business completely. Sound economics show that there would be no real benefit to the city from subsidizing such an endeavor (and that there would likely be significant costs from doing so).
If MLB owners believe that their teams (and requisite stadiums) provide an opportunity to make money while providing a valuable service to the community, by all means let them do so in the free market as all other business owners must – on their own dime.
If not, then it is best if the former Montreal Expos disband or move to another location. MLB would then be free to find a truly profitable venue for its team, and taxpayers would be spared hundreds of millions of dollars in wasteful spending and corporate welfare. This is a business decision for MLB to make, not the Washington City Council.
Adam B. Summers is an economic consultant and a visiting policy analyst at the Reason Foundation.