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The Public Dollars Fueling the NFL Dispute

June 01, 2011

By Steven Malanga

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The current National Football League labor dispute is sometimes characterized as a battle between billionaire team owners and millionaire players. What’s often left out, however, is the role that the American taxpayer is playing in this dispute.

Through rich stadium subsidies and cartel powers granted to professional football by our representatives in Congress, we have helped to bankroll the gains in revenues that are now at issue in this clash. In particular, as Vanderbilt University economist John Vrooman argues in a chapter from a forthcoming book about the NFL (Economics of the National Football League, edited by Kevin Quinn), increases in local revenues spurred by government-subsidized stadiums lie at the heart of the dispute. The lousy return that these expensive venues provide to taxpayers will get even worse if there’s no football this fall.

The NFL and the players’ union negotiated a collective bargaining agreement in 1993 that set the stage for the current impasse. The players gained free agency, but in exchange the league won the right to cap salaries at 64 percent of revenues. But those revenues included in the cap are calculated in a complex formula that allows teams to exclude certain local income from the shared pool. Over time, team owners naturally have tried to maximize those revenues that are unshared, including lucrative income from luxury boxes and club seats. According to Vrooman, revenues from stadium sites in the last twenty years have grown from 10 percent to 23 percent of total league proceeds.

Taxpayers enabled much of this. Shortly after the 1993 bargaining agreement, the NFL embarked on an aggressive era of local expansion that included adding new teams in cities where politicians were desperate for a franchise and expanding the revenue capacity of most existing teams by building new stadiums. The end result was an addition of 25 new venues each boasting on average some 150 luxury suites and between 8,000 and 9,000 premium club seats. The first group of 13 stadiums, built before the NFL created its own loan fund to help finance new stadiums, cost $3.3 billion, of which only $888 million, or 27 percent, was private financing. Stadiums in St. Louis, Oakland (which was renovated, not constructed, for $128 million), Baltimore, Tampa Bay, Cleveland and Cincinnati were among those built primarily with public funds.

With more owners clamoring for stadiums, the NFL then started a loan fund which has helped owners build or renovate another 12 venues. Still, taxpayers have borne about 40 percent of the nearly $8 billion in construction costs for these, though that number is largely skewed by the fact that the Giants and Jets privately financed their extremely expensive (some would say overpriced at $1.6 billion) new stadium. In other venues, including those in Indianapolis, Denver, and Chicago, financing from private sources amounted to less than one-third of the total cost, even with the NFL loan fund pitching in, Vrooman estimates.

Our public officials continue to hand over these subsidies even though rich academic literature argues that these investments rarely make economic sense. Sports venues at best create short-term construction jobs and a few hundred or so permanent jobs, mostly low-wage service employment that doesn’t begin to justify these staggering subsidies. NFL teams, in particular, don’t produce much additional economic activity because they play so few home games. And yet, the latest stadiums are mostly designed exclusively for football, as opposed to the multi-purpose stadiums of the past that were used more often. Indeed, NFL owners have demanded from local officials just such single-purpose stadiums because they help to maximize revenues.

Moreover, the life our professional sports venues grows shorter and shorter as teams seek stadiums that incorporate the latest in entertainment innovations. That has stuck cities with empty stadiums supported by taxpayers. Though the New Meadowlands stadium was built with private money, the old Giants Stadium still carried $110 million in public debt when it was demolished. Meanwhile, the Houston Astrodome, which used to host both professional baseball and football, now sits empty with $32 million in public debt on it and a projected cost of hundreds of millions to tear it down. Seattle replaced the Kingdome with separate stadiums for its football and baseball teams. When demolished, the Kingdome still had $150 million in debt on it, which taxpayers will be paying off until 2015.

Despite the public subsidies, owners now claim that the stadium building boom has ironically saddled some of them, notably smaller market teams, with so much debt that they are squeezed and need a new deal from players. If so, you have to wonder what the real value of an average NFL franchise, currently estimated at a whopping $1 billion each, would be if the owners had to pay for all of their luxury palaces with their own money.

Because of a sense that the owners are driving this dispute, what little public support that exists seems reserved for the players. Still, it’s hard for me to work up much sympathy for them because they, too, are the beneficiaries of the quasi-monopoly status granted by our government to football. Their big leaps in average salary are a function of shared revenues that have soared, most especially from TV contracts. From 2000 through 2009, according to the USA Today database of professional sports salaries, the average salary of an NFL player more than doubled to $1.8 million. Median salary increased more slowly because of a trend toward awarding an increasingly bigger share of the revenue pool to star players, but even the median today sits at $770,000 annually, up from about $450,000.

Those gains have come because of rich television contracts enabled by Congress. In 1961 the legislature passed the Sports Broadcasting Act, which gave the major pro sports leagues an anti-trust exemption so that the teams could band together in each league and negotiate national contracts. Otherwise, the individual teams would have been relegated to bargaining in each market with local stations for much smaller contracts, which would have almost certainly resulted in less revenue and complicated the NFL’s revenue sharing arrangements. Annual rights have soared from $5.3 million in 1962 to $4 billion today, Vrooman estimates.

We have paid the price for this Washington-enabled cartel. As the cable-TV audience has become increasingly fragmented, the major networks have placed a big value on NFL games because they are national in scope. But the major networks have also groaned under the cost of these rights and demanded more from cable and satellite operators to air their shows. It’s not an exaggeration to say that the so-called ’carriage wars’ between the likes of Fox, and ABC on the one hand, and Cablevision on the other over transmission fees are being driven by the rich rights the networks have paid for professional sports. One reason, for instance, that ESPN can demand steep carriage fees from cable operators and force them to carry multiple versions of the network, even though 75 percent of cable subscribers don’t watch sports regularly, is because the sports network can still deliver that huge NFL audience.

But if these telecasts don’t interest you much, then the next time some member of Congress complains about spiraling cable TV fees and vows to hold hearings on the subject, you might shoot him an e-mail asking if he plans to introduce legislation repealing the 1961 Sports Broadcasting Act. While you are at it, you might raise questions about the tax-free status of municipal debt that governments often float to build stadiums for professional teams, stadiums that might be empty this fall.

Original Source: http://www.realclearmarkets.com/articles/2011/06/01/the_public_dollars_fueling_the_nfl_dispute_99050.html

 

 
 
 

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