The Sacramento Kings owners are apparently relenting to political pressure and agreeing to “significantly contribute” to the financing of the new sports arena the city is planning to build for them. This is pretty extraordinary. The city is planning to finance a $387 million facility that will primarily benefit the team franchise, and the team owners act as if their financial backing is optional. Although the numbers aren’t publicly finalized, the Sacramento Bee is reporting that the Kings might be putting up $85 milllion of “their own money,” or about 22% of the total cost.
Team owners shouldn’t look at their contribution as being optional. The real question is: Why don’t the Kings owners pay the full cost of the facility? Or at least they should invest as an equity stakeholder in a private venturs so they have a financial interest in seeing it succeed financially. They don’t for one simple reason: It won’t make money. The benefits of their teams aren’t high enough to lure enough patrons willing to pay a high enough ticket price to cover the costs.
Professional sports continues to be crony capitalism at its worst, using its oligopoly status to extract rents from taxpayers through elected officials. The reality is that precious little evidence exists suggesting that professional sports teams boost economic growth for cities, let alone neghborhoods, and the so-called benefits reflect the low bar used by local officials to claim success.
For more, and a balanced look at the costs and benefits of stadium and arena development, see this pair of studies by Marc Rosentraub here and here. This useful article by Victor Matheson on why economic impact studies almost always overestimate the benefits of these investments is worth reading as well. Reason Foundation’s work has appeared here and here and here.