01 June 2016

Stadiums: Should We Really Pay?

Guest Post by Leon Moore

“The Stadium that Manning built” is what some call Lucas Oil Stadium. But the evidence points to a different builder of this 63,000 seat behemoth: the taxpayers. The stadium cost 720 million dollars, of which the Indianapolis Colts paid only 100 million (1).

The stadium in downtown Indianapolis opened in 2008 and replaced the RCA dome, which was built in 1983. Lucas Oil Stadium is an extremely modern stadium equipped with 1,000 flat screen tvs, 137 luxury suites, state-of-the-art turf and seven locker rooms (4). Proponents of the stadium argued that the building of this stadium would insure many future super bowls in the city and many college basketball tournament games.

The Colts also threatened to leave the city in 2006 adding to the cries for the construction of a new stadium funded by public dollars (4). As Andrew Zimbalist points out, a small market team is much more susceptible to this kind of pressure than is a large market team (5). And Indianapolis is a relatively small-market city. In addition to this, an economic impact study stated that over the next 10 years the project would create 2.25 billion dollars in economic benefit. It also stated that 4,900 construction jobs would be created along with 4,200 permanent jobs (4).

With seeming benefits like this on the table, the stadium was approved. Often In situations like this many people set to make money jump on board quickly. People like construction companies, contractors, architectural design firms and construction unions support these types of projects (5). In addition to these groups, bankers, lawyers and other businesses support the projects (5). With groups this powerful in favor, stadium projects can be approved with greater ease.

In the case of Lucas Oil Stadium, bankers have made huge profits. Goldman Sachs, who the Indiana Finance Authority borrowed money from, are now being paid 71 million dollars to restructure debt (2). The public debt grew to 666.5 million dollars after the auction-rate bond market collapsed in 2008 (1). With the deal the debt will be 296 million dollars (3). So essentially Indiana made a bad deal and are now having to pay even more to get some relief. There was also 43 million dollars of unexpected financing costs that fell on the state (1). Local officials have raised hotel, restaurant and rental car taxes to pay for it and the other costs (1).

But the real question is whether or not building this stadium actually benefited the public. According to a report by Jordan Rappaport and Chad Wilkerson the economic benefits to publicly financed stadiums are much less than initially predicted. Often the economic benefits from a stadium are actually just subtracted from another economic sector in a city (6). With Lucas Oil Stadium however, many people are brought in from out-of-town to large sporting events such as the Super Bowl and college basketball tournament games. So the building of this stadium might have more economic benefits than other stadiums.

But still, the amount that the taxpayers have spent on this will be very hard to make up. Combine the large debt with the fact that Goldman Sachs has seemed to profit off of taxpayers as well, and it makes the building of the stadium seem like a hard pill to swallow.

Many of the people with a vested interest in stadium construction already have money, which makes their influence on local government out-sized. They have the resources to advertise and hire firms to do biased economic impact studies. But the people who end up paying are the regular taxpaying people of the state. As Rappaport and Wilkerson point out, voters should have the ultimate choice over whether a stadium is built or not. They should have accurate and unbiased estimates and it should come down to how much they value their sports teams.

1) http://www.bloomberg.com/news/articles/2012-02-02/super-bowl-lands-on-taxpayers-backs-as-stadium-deal-turns-sour
2) http://www.atlredline.com/goldman-sachs-rakes-in-millions-from-lucas-oil-stadium-1705385983
3) http://www.indystar.com/story/news/2015/05/23/state-pays-escape-risky-lucas-oil-stadium-debt/27802331/
4) http://www.bloomberg.com/view/articles/2012-02-03/as-super-bowl-shows-build-stadiums-for-love-and-not-money-view
5) Zimbalist, Andrew “May the Best Team Win”
6) https://www.kansascityfed.org/~/media/files/publicat/econrev/econrevarchive/2001/1q01rapp.pdf

Images: http://huntconstructiongroup.com/projects/stadiums/lucas-oil-stadium/