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Kenneth Zapp: A stadium won't create new wealth

  • Article by: KENNETH ZAPP
  • February 1, 2008 - 8:02 PM

The Metropolitan Sports Facilities Commission completed its "listening tour" of Minnesota on Jan. 16 at the Metrodome. As an economist, I was disappointed to see that the commission's pitch for a $950 million covered stadium was based on misleading economic information.

The commission hired RSM McGladrey, a respected accounting and financial-services firm, to estimate tax revenue derived from local sports arenas. I do not question the specific revenue estimates, but two implications of the report must be challenged.

First, the report implies that tax revenue from sports facilities would not have been collected had they not been built. This is not true. Every economic study of stadiums has found that professional sports do not create economic value. If people do not have such games to attend, they spend their money on alternative forms of entertainment or events, which are also taxed.

People in Los Angeles, a city that does not have an NFL team, do not sit at home on Sundays and watch their money. Instead, they participate in other activities that create revenue for local and state government.

Lester Bagley, lead PR man for the Vikings, claimed that the Vikings produce $12 million in tax revenue for government here. The real question is how much revenue would be lost if the Vikings were not here. Since all local spending would go to other taxed activities, government would lose only the part of the team's local spending that is funded by NFL TV revenue.

Secondly, the McGladrey report compares total revenue collected compared to the initial cost of each professional team and venue. The report implies that a comparison of the revenue collected to the venue costs indicates a positive return for the public. This is not true.

In economics and finance, when we analyze an investment we must compare its cost to the present value of the future cash flows. One dollar of tax revenue 25 years from now is worth only 15 cents today at an 8 percent interest rate. The McGladrey report did not give the present value of the estimated tax revenues and overstated them for reasons cited earlier.

This does not mean that the stadium should not be built. It does, however, force us to decide who should pay for it.

A central concept in economics is that people who benefit from something should pay for it. This is also good public policy. If this principle guides our discussion, we can fund a stadium without imposing a general income or sales tax on people who do not benefit from it.

A stadium generates revenue from naming rights, concession rights, advertising, seat licenses, ticket taxes, parking taxes, souvenir and related NFL merchandise sales taxes, media access fees and facility use fees. The commission claims there are multiple uses for a covered venue besides sports; these activities should also pay their portion of the cost.

Government should not subsidize one private company in a way that hurts other private companies. Subsidizing the Vikings by building them a stadium without making users pay the cost would be unfair to all other private firms that compete for this business.

Kenneth Zapp is a professor in the College of Management at Metropolitan State University.

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