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You Should Watch the Super Bowl, You’re Paying for It

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You Should Watch the Super Bowl, You’re Paying for It

January 29, 2015

Before the Super Bowl this Sunday, one winner is already determined—local New England Patriots fans. NFL owners are professionals at extracting taxpayer money from local fans to fund generous subsidies for their lavish stadiums, and the NFL is tax-exempt. But Patriots owner Robert Kraft took a different, more taxpayer-friendly, approach and arranged 100 percent private funding for the construction and maintenance of Gillette Stadium, located outside Boston. In contrast, the public’s share of financing for the Seattle Seahawks’ CenturyLink Field was 64 percent ($300 million). In this competition, the Patriots won by an even larger margin than they did against the Indianapolis Colts. 

Local Seahawks fans are not just paying for CenturyLink Field—they are still paying for the team’s last home field as well. The Seattle Kingdome was occupied for just 24 years before the city agreed to build the Seahawks a new stadium. Even though the Kingdome was demolished in 2000, taxpayers were still responsible for nearly $180 million to cover its outstanding debts. The last of the debt will finally be paid off this year. 

As University of Michigan professor Judith Grant Long shows in her 2012 book Public-Private Partnerships for Major League Sports Facilities, taxpayer costs for new stadiums have been increasing drastically. Public funding for stadiums completed in the 2000s was 70 percent higher than for those completed in the 1990s. 

Most public stadium cost figures are underestimated since economists and policymakers fail to take into account “maintenance expenses, capital improvements, municipal services, and the abatement of local property taxes,” according to Long. Returning to the Gillette Stadium, Massachusetts did agree to pay for updating surrounding infrastructure, and the other often-ignored costs listed by Long.

When these costs are included, the average public bill for each of the 121 professional sports stadiums in operation at the end of the 2010 season increases to $259 million—78 percent of total average costs. This means the total tab passed on to American taxpayers for the 121 stadiums was $31 billion. 

As my Manhattan Institute college Steven Malanga says about professional sports stadiums, a general aphorism applies: “If you build it for them, they will fleece you.”

In 2016, the Minnesota Vikings, who finished this season with a 7-9 record, will be playing in a newly minted $1 billion stadium. Vikings fans were rightly frustrated by their team’s performance. In addition, including interest, Minnesota taxpayers are picking up more than half the costs ($678 million) of the new stadium. Never mind that Vikings owner Zygi Wilf is estimated to be worth up to $1.3 billion and that the Vikings franchise is valued at $1.15 billion

The continued lack of a team in Los Angeles, California serves as a threat for any city that attempts to stand up to the NFL. Owners, including the Vikings’ Wilf, demand that cities fund their lavish new stadiums, or else they will take their teams out West. Professional sports, especially the NFL, are popular, and no mayor wants to lose a team while in office. 

Studies have consistently shown that publicly financing sports stadiums does not pay for itself. Proponents of these taxpayer subsidies fail to realize that people will spend their money on other things besides $84 tickets (average price in 2014) and $8 beers (also the average price). The small bump in tourism and economic activity does not come close to covering the associated costs bore by the public. 

Cities are also losing out on property taxes from stadiums. Generally, professional sports teams are not liable for these taxes since, due to complex layers of ownership and leases, the stadiums are publicly owned (even though the stadium’s profits are not). 

The National Football League’s headquarters is recognized by the IRS as a nonprofit 501(c)(6) trade organization. This is another way in which the NFL hands taxpayers the bill. The NFL’s power over legislators is so strong and longstanding that since 1966 the IRS statute governing 501(c)(6)s specifically lists “football leagues” as tax-exempt, along with “business leagues, chambers of commerce, real estate boards, [and] boards of trade.”

The average NFL franchise is worth $1.43 billion, higher than the average for any other professional sports league in the world. The franchises are not tax-exempt, but that does not mean they too do not score sweetheart stadium deals at taxpayers’ expense. According to estimates from the Joint Committee on Taxation, the taxpayer cost of the NFL’s tax exemption over ten years comes to $109 million. This means that the billions in taxpayer-provided support for new stadiums are by far the largest subsidy gifted to the NFL. 

In 2013, Commissioner Roger Goodell received $44 million in total compensation—steep for the head of a nonprofit organization. His compensation would have ranked him as one of the top ten highest paid CEOs, if the NFL was a public company. 

The PRO Sports Act, introduced last year by Senator Tom Coburn (R-OK), would strip the tax-exempt status from the NFL and any other professional sports organizations with annual revenues that exceed $10 million. Other leagues that would be affected include the National Hockey League, PGA Tour, and Ladies Professional Golf Association. The leagues these four organizations represent generate an estimated $13 billion a year in revenue, though most of this comes from the teams and is subject to tax. According to IRS 990 forms, the non-profit NFL headquarters brought in revenues of $327 million last year. The National Basketball Association and Major League Baseball both do not hold tax-exempt status, proving that successful sports leagues can operate without this form of government subsidy. 

Senator Angus King (I-ME), explaining why he supports the PRO Sports Act, stated, “Section 501(c)(6) of the tax code is intended to exempt organizations that exist to promote specific industries and professions, not league-specific brands… I like the NFL, but I don’t think it’s unfair to ask their central office to pay its share in taxes.” In other words, the NFL is not working to promote the sport of football in general, but its 32 teams. This is why the NFL would lose its tax-exempt status if “football leagues” were removed from the IRS statute. 

Taxpayers should not subsidize large, successful businesses such as the NFL. Franchises are worth more than $1 billion, and the league’s revenue is expanding at an impressive rate. Cities and states need to resist the urge to shower NFL owners with public subsidies, and Congress should end the NFL’s tax-exempt status. Regardless of who wins Sunday, taxpayers are the losers. 

 

Jared Meyer is a fellow at Economics21 at the Manhattan Institute for Policy Research. You can follow him on Twitter here.
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