If you’re anything like most people, chances are you haven’t cashed out your retirement savings to see the Denver Broncos play the Seattle Seahawks in this Sunday’s Super Bowl.
You might really want to go, but you realize that $1,600 a ticket is too steep a price for a once-in-a-lifetime chance at upper deck frostbite. So like 110 million other Americans, you’ll tune in to Fox on Sunday and enjoy the game in the company of family and friends. You’ll be warm, you’ll watch the commercials, and you won’t have to shell out a dime to watch the game.
There’s just one problem.
You’re still paying for the action at MetLife Stadium.
Actually, you helped fund pretty much every NFL game this season. And last season. And the season before. In fact, you’ve been a steady contributor to the NFL for years, even if you’ve never once watched a football game.
No, you didn’t inadvertently sign up for a non-cancelable subscription to NFL Sunday Ticket. And no, it has nothing to do with you skimming the end-user license agreement for Madden ’99.
It’s worse. You are a United States taxpayer.
And, therefore, you pay for football.
Writing the Playbook
Unbeknownst to even its most avid fans, the NFL enjoys some of the sweetest tax breaks of any big business. Invisible to government budgets but potent for bottom lines, these “tax expenditures” inflate team profits while squeezing everything else government must do.
Think of them as the ultimate play-action fake: while the public fixates on welfare for the working poor, NFL owners and executives are sprinting down the other end of the field, untouched and tightly grasping entitlements of their own.
As fans, we don’t like stratospheric ticket prices and $10 beers. We complain about millionaires who all-too-regularly forget the basics of throwing and catching right when the game’s on the line.
But we keep showing up. We realize it’s a cost of doing business. Once we get past the sticker shock, we realize football’s financial absurdity is, at some level, justified by basic economics.
It’s a simple case of supply and demand. When more of a good is desired than is available, the price rises. Hence, tickets are expensive. When a worker is disproportionately more productive than available substitutes, his wage rises. Hence, superstars are millionaires. We might not necessarily like these things, but we can’t fight the economic logic.
The same cannot be said of football’s tax breaks. Not only are such transactions hidden from public view—and thus escape democratic accountability—but they also violate the principles of sound economic policy making.
Consider the NFL’s most egregious subsidy: publicly-financed stadiums. Since 1990, 29 of the NFL’s 32 teams have built new stadiums or significantly renovated existing ones.
More than three-fifths of the bill—$6.4 billion in nominal terms—was paid for by taxpayers. Some experts put the public share as high as 70 percent.
Why in the world would state and local governments subsidize the capital costs of a league that generates $10 billion in annual revenues, whose franchises are collectively valued at $37.3 billion, and whose annual returns have averaged over 17 percent for the last decade?
The answer is simple: monopoly.
The NFL strictly controls the supply of professional football franchises in North America, and more cities want teams than there are teams to go around. Monopoly in the NFL works the same way as a monopoly in smartphones. Producers limit supply to raise prices or otherwise extract concessions from their customers.
Owners who want a new stadium follow a tested script: give us a new stadium, or we’ll move. Elected officials—fearing public rebuke or seeking to curry favor with potential donors—are all too willing to acquiesce.
Of course, monopolies in smartphones are illegal. Congress, however, keeps granting the NFL antitrust wavers—-essentially giving it an exception to the No Monopolies rule.
Hidden Costs of Construction
Sadly, that’s barely the half of it. While the NFL is America’s most lucrative sports league, it is hardly alone in coercing taxpayers for private gain. When you include the other major sports leagues—the MLB, NBA, and NHL—the total public debt issued for stadium construction since 1986 totals $17 billion.
Nor are public subsidies confined to direct construction. Big capital projects tend to require infrastructure upgrades, like roads, sewers, water, and public transit. Municipalities regularly provide these in-kind—but they are typically omitted from the official tab. Likewise, the land on which stadiums are built is frequently provided at a substantial discount. All told, land an infrastructure can add 20 percent to the public bill.
The fun doesn’t end once the stadiums are built. Most stadiums receive property tax exemptions—some because they are (technically) publically owned, and others to further please owners.
To take just one non-random example, the owners of Madison Square Garden, home to the Knicks and Rangers, haven’t had to pay property taxes since 1982, costing New York City $17 million in 2014 alone.
Charity for the Rich
Think of your donation to the NFL as a charitable contribution, at least as far as the law is concerned. Section 501(c)(6) of the Internal Revenue Code says the NFL is a not-for-profit organization.
While this designation applies only to the league office and not the individual teams, it nevertheless means the administrative arm of a $10 billion business whose chief, Roger Goodell, makes $30 million, is wholly exempt from corporate taxes.
It’s the proverbial two-point conversion to the stadium subsidy touchdown. Senator Tom Coburn, who introduced legislation to close the loophole, estimates the 501(c)(6) “trade association” exemption, which the NHL and PGA also exploit, costs taxpayers $91 million annually.
When you sum it up, the scoreboard reads something like NFL $1 billion, Taxpayers $0 each year, says Gregg Easterbrook, author of The King of Sports: Football’s Impact on America.
While Congress cuts food stamps and the homeless population reaches record highs, the richest, most popular sports league in America gets a ten-figure handout.
Not that NFL executives and their lobbyists (upon whom the league has spent more than $8.5 million since 2007, by far the most of any pro sport) would put it that way. In their view—as expressed in breathless stadium project pitch books—sports franchises are a boon to local economies.
Owners aren’t selfishly appropriating tax breaks; they’re providing a public service—creating jobs, stimulating spending, and driving growth.
As appealing as that story sounds, it’s false. Virtually all serious academic studies conclude that new stadiums offer few, if any, economic benefits to their surrounding communities. Some find that the overall impact is actually negative.
See, the amount of money that the general public is able to spend on entertainment is relatively fixed. The more consumers spend on football, the less they spend on everything else that competes for their leisure dollar.
How can this be? After all, building and operating stadiums do create jobs, and fans aren’t shy about opening their wallets for their favorite teams. The answer is two-fold.
The first part has to do with substitutes. Just like only one player can play each position at a time, households can buy only one thing at a time. Budgets are finite. The more consumers spend on football, the less they spend on everything else that competes for their leisure dollars.
So while stadiums might increase business for local bars and restaurants, they simultaneously push people away from establishments located elsewhere in a city.
To make matters worse, the real winners—owners, executives, and players whose incomes benefit the most—tend not to limit their spending to local businesses in the same way that regular residents do. Their supersized paychecks might be earned locally, but are cashed globally—in other words, much of the gains from local subsidies are exported.
The second part of the answer is another favorite topic of economists: opportunity costs. When assessing the benefits of a stadium, the true baseline for comparison is not “no stadium,” but rather what those public dollars could have otherwise been spent on. Even if new stadiums increase local income—something which the literature suggests is a dubious proposition at best—they very likely spur less growth than alternative infrastructure investments, like those in schools, transportation, or public health.
In football terms, the question is not whether Tom Brady is worth $14 million, but whether that $14 million is better spent on Peyton Manning. Gross positives can be net negatives.
The latter scenario is particularly likely with regard to subsidizing pro sports, as (a) the jobs created tend to be temporary, seasonal, and low-paying, (b) the tax increases used to finance stadium construction are distortionary, (c) it is hard to make a case that an industry that glorifies concussions and couch potatoes somehow enhances workforce productivity.
Economics, like sports, depends upon competition. For far too long, the NFL has enjoyed the corporate equivalent of performance-enhancing drugs. It’s time the public started demanding stricter drug tests.
Eliminating the NFL’s non-profit status is an important symbolic step. A heavier lift is reforming the tax rules for municipal debt in ways that eliminate perverse incentives for localities to put taxpayers on the hook for stadiums.
But as is true in sports, the clearest path to victory comes through teamwork. So long as the NFL monopoly keeps supply below demand, localities will remain profoundly disadvantaged at the bargaining table.
The good news is that fortunes can change faster than you think. (Just ask the Giants how much they’re enjoying their 2012 championship now). The brighter and longer the spotlight shines on the ransom NFL owners extract from taxpayers, the more irrepressible will be the call for reform.
As any successful coach will tell you, a key to victory is understanding your opponent’s playbook. Knowledge and transparency are powerful tools. The better we—fans and nonfans alike—are informed about the NFL’s business practices, the more effectively we can push our elected officials to put up a strong defense.
As fans and as voters, we must play our part. If one of the teams this Sunday got to start with a 50-point lead, few of us would bother watching. We’d be outraged. There’d be mass protests and Congressional investigations.
Yet that’s precisely the situation we’ve allowed to develop on the playing field between the NFL and cities. Now would be a good time to start booing.