Posted by John Vrooman on Wednesday, August 22, 2018 in National Football League.

Interview with Bloomberg News.

Cowboys Stadium 2010.

Do you have any estimates on how much Arlington has spent on pro sports since first building the (first) Rangers stadium? My estimates show about $960 million, which include $135 million in bonds for the 1994 Rangers stadium, $325 million for the Cowboys stadium, and $500 million for the Texas Rangers again based on a 2016 vote. That only includes what’s been spent on the Cowboys and Rangers.

I’ve got roughly the same #’s. That puts the direct subsidy by Arlington tax payers at about $1.1 billion in current (2018) dollars ($135 then =$230 now; $325 then = $380 now and $500 million).

Because the City/Sports Authority owns the venues there is also the indirect subsidy of forgone property taxes and lower interest rates paid on tax-free municipal bonds. The Cowboys pay $2 million per year in lieu of taxes and corporate interest rates, plus $500,000 for AT&T naming rights from which the Cowboys harvest about $19 million per annum.

These “pseudo-rent” payments are called PILOTS (payments in lieu of taxes) and comprise  major indirect subsidy paid by cities competing in the contemporary venue extortion game.

(There is also the now infamous eminent domain scandal surrounding Arlington, the Rangers ballpark and team owner/Texas governor George W Bush in the 1990’s)

Recent development over the weekend suggest that e-sports is indeed risky biz:

“In addition to a questionable public-private investment payout in the suburban city of Arlington, E-sports is risky business built on a non-traditional and unpredictable millennial fan base.”

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• How do you evaluate the economic return on investment that Arlington has seen from investing in the Cowboys stadium?

Please find attached a brief analysis of the present value of AT&T stadium (2009) investment to the Dallas Cowboys that I did for the Dallas News in 2010.

The City of Arlington directly subsidized 30 percent of the $1.2 billion luxury venue of the Dallas Cowboys, the most valuable sports franchise in the world. Arlington’s $325 million public share was funded by a .5% sales tax (originally passed in 1991 for the Texas Rangers) and other tourist taxes.

At the time these conservative estimates showed that the private venue revenue for the Cowboys would alone cover the $1.2 billion capital cost of the Cowboys venue about 4.3 times (about 4.8 times including AT&T naming rights of about $19 million annually (2015) of which Arlington gets $500K).

Public subsidy could possibly be justified if the direct spending and indirect multiplier effects within Arlington spread beyond Cowboys AT&T Stadium. There are five significant factors that invalidate the usual Chamber of Commerce multiplier effect self-promotion argument.

First, the direct spending in Arlington is probably insignificant because the new luxury venues and AT&T Stadium in particular are economically designed to hermetically capture all of the financial gains within the venue (hence the 5:1 private venue revenue coverage ratio for the Boys). There is zero economic activity surrounding the monolithic AT&T Stadium.

Second, the economic multiplier effects are zero-sum at best because spending at AT&T displaces spending elsewhere within the limited Arlington jurisdiction. The usual rule of thumb is to divide naive self-promotion multiplier effects by 10.

Third, the spinoffs for the DFW metro area are well beyond the limited tax jurisdiction of the suburban City of Arlington. So the economic spread effects cannot be captured by Arlington. The secondary spread effects for regional multipliers are non-existent because the economic spending leaks out of Arlington like a sieve.

Fourth, it is also important to realize that AT&T luxury stadium attendance is progressive with respect to income and the sales tax funding instrument is highly regressive. As a result Arlington’s subsidy of the stadium transfers welfare from Arlington taxpayers to more affluent Cowboy fans from throughout the DFW metro-plex.

Fifth, before relocating to Arlington from Irving, the Cowboys conducted an exhaustive extortion auction among Dallas (Fair Park/Cotton Bowl), Irving (Texas Stadium) and Arlington (Texas Rangers) for the illusory prize of subsidizing the Cowboys new stadium. As a result the “winner” of the auction (Arlington) has systematically overpaid (“the winner’s curse”) and over-subsidized the new Arlington venue since labeled Jerry’s World. (after Cowboys owner Jerry Jones).

• Was it worth the cost, in your view?

Nope. Public subsidy of a private business is only justified if there are significant external gains beyond the private project that cannot be internalized by the private sports franchise. Even then, the subsidy should be limited to infrastructure spending that connect the private project to the wider economic grid so as to internalize those economic spread effects. Infrastructure spending connecting the grid is usually about 10%-15% of the project costs. As a competing jurisdiction in the larger metro-DFW, Arlington has paid too much before and they will probably pay too much again for the reasons outlined above.

• The city says that the stadium hosts 300 events per year, unlike some pro stadiums that can sit empty other than the 10 or so games that teams might play. The Cowboys also have had the highest attendance of any NFL team for several years. The city has also not had trouble paying off the bonds for the stadium. Do you think that makes the project more of a success?

Many of these events are weddings and bar mitzvahs. Most of these events are good for Jerry’s World but economically irrelevant for Arlington. The public subsidization of sports venues distorts and falsely prioritizes the spending of Arlington taxpayer dollars toward the Dallas Cowboys and their relatively affluent fan base throughout DFW.

The basic rule in venue finance is that the guys that benefit should be the same guys that pay in the same proportion, nothing more and nothing less. As America’s Team, the Dallas Cowboys have essentially walked the check for Jerry’s World and there is little left for local taxpayers in Arlington but the game day congestion and the regressive tax bill.

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I’m working on a story about esports arenas, and was hoping to speak with you. The story is centering on Arlington, TX, which is investing $10M in an esports arena.

I am hoping to tie in information about the Dallas Cowboys stadium and whether the investment was ‘worth it’ to the taxpayers of the city.

Do you have any info on that stadium and the impact of it?

The City of Arlington’s recent e-sport adventure is subject to the same negative-sum economic deficit as its more conventional over-subsidization of the MLB Texas Rangers and NFL Dallas Cowboys.

In addition to a questionable public-private investment payout in the suburban city of Arlington, E-sports are risky business built on a non-traditional and unpredictable millennial fan base.

The direct economic effect of e-sports on Arlington is zero-sum at best and any indirect spinoff effects on the tax jurisdiction island of Arlington are washed away in the surrounding economic sea of metro-DFW.

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