Nothing More or Less

Posted by on Friday, January 18, 2019 in National Basketball Association.

Interview with Arizona Republic.

The Phoenix Suns have been asking Phoenix to update its city-owned arena for years, and late last year, they brokered a deal that would have the city paying $150 million and the Suns paying $80 million. Unsurprisingly to me (but apparently surprising to the team and the city), the public was not thrilled when presented with the deal, and the council ended up postponing the vote so it could “better educate the community.”

The deal is not as bad for taxpayers as many deals I’ve seen recently, and it may well be the best deal available to the city at this point, given that it owns the arena. But what was so fascinating to me was this disconnect between the team/city and the community. It was almost an expectation that the community would buy in (because in the Phoenix metro area we’ve done so time and time again with sports facilities).

I was wondering if you could speak to how public sentiment has changed over time and whether we will ever see a time when public money is no longer used for professional sports.

Here’s some questions, feel free to take it any direction you’d like:

Has public sentiment about publicly financed sports facilities changed over time? If so, why do you think it has?

All four professional sports venues in Phoenix/Glendale were conceived during the luxury venue revolution of the mid to late 1990’s. Venues built before the revolution were largely publicly funded multipurpose facilities designed to optimize external public welfare by allowing as many fans to watch events at the lowest possible price.

Venues designed during and after the 1990’s revolution were single-purpose laps of luxury, downsized to maximize internal private team profit by charging half as many fans more than twice as much as before.

The social equity problem was of course that the privately held clubs and respective leagues sought to continue the public funding for what was fast becoming an exclusive (and opulent) private business run by the classic extortion rules of a sports league monopoly cartel. Non-sports fans were being taxed for something that they would never use, sports fans were paying twice for the same venue and the local sports franchise was simply walking the check.

The classic venue extortion gambit is played out by monopoly sports cartels that limit their league size to create at least one viable market (currently Seattle in the NBA or NHL) that is empty without a team. This game of musical chairs creates extortion triangles that maximize the leverage sports teams can put on local governments with the threats of franchise relocation.

The extortion triangles can match occupied large market v. empty large market or smaller “sports friendly” suburban markets (like Glendale) against each other in a larger metro market (like Phoenix). The extortion result is the same, and the winning market systematically over-subsidizes a private business.

Has the (seemingly constant) threat to move sports teams created a public apathy toward professional sports?

As it turns out, the economic life of the luxury venues is about 20 years and the venue revolution will have come full circle by 2020. Taxpayers in general and sports fans in particular have now been there and done that several times over. Fool us once, shame on the League cartels; fool us twice, shame on us. There is clear evidence that the acceptable public share is shrinking as the revolution revolves into round 2.

When (if ever) is it financially smart for governments to invest in professional sports?

The argument for public subsidy is that the sport venue generates external economic benefit (economic growth) to taxpayers and that they should pay their share and not take a free ride. The basic rule of thumb in  venue finance is public welfare is maximized when the guys that benefit are the same guys that pay in the same proportion, nothing more and nothing less.

The problem with this argument in the real world of sports finance is that economic spinoffs are usually zero-sum if not negative-sum for the economic tax base. Most of the indirect venue benefits are exaggerated self-promotions that are concentrated on the project developers and team owners. Given economic architecture of the new exclusive luxury venues most of the spinoff multipliers are hermetically sealed within the arena. After the team takes its cut, there is nothing left for general taxpayer except the regressive tax bill and the congestion.

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