Zoned Out: A Study in Sports Financing

Imagine with me the following scenario: after obtaining approval from New York City to proceed with expansion plans in Manhattanville, Columbia further asks the city to provide a billion dollars of public financing for the project. The municipal government refuses to go with the plan, and Columbia proceeds to offer to move to whatever new city is willing to offer a new campus funded with taxpayer money. Sensing an opportunity to land an Ivy League university, such a municipality steps up with the money to build a state of the art campus, and Columbia summarily packs up its bags and goes.

While I personally wouldn’t mind a relocation to a more sunny locale, the above scenario is pretty far-fetched. Even disregarding the fact that much of Columbia’s character and reputation comes from being in New York, it’s difficult to imagine New York or any city agreeing to such financing. True, the university may be getting an indirect subsidy through eminent domain use and zoning changes, but a request for direct public money would provoke a lot more outrage than exists currently. They are blackmailing the city of New York, some may say. It’s socialism for the rich, others would add. In short, the situation just would not transpire.

But the threat of the above almost always looms large in another area of municipal policy: the financing of sports stadiums.

Sports arenas are very expensive investments to make. So expensive, in fact, that they cost almost as much as the professional franchises they house. The FedEx Forum that houses the Memphis Grizzlies had a construction cost of 250 million dollars; Forbes magazine estimated the value of the Memphis franchise to be 313 million dollars in 2007. With such an exorbitant price tag, very few franchises can afford to finance such investments. Their solution? Turn to the cities that they play in. But the sporting venues are very large commitments for the cities as well. In the case of Memphis, the city budgeted an expenditure of 112 million dollars for debt service in 2008. Consider that the 250-million-dollar construction cost was entirely financed using public bonds, and it becomes clear that the arena is a very significant portion of the city’s debt service, and a huge commitment on the city’s budget.

In the face of these facts, it is easy to see why many cities hesitate to commit to such projects. Yet stadium after stadium have been constructed with public financing, with the city picking up the entire tab in some cases. Lobbying for the venues often includes the threat of relocation. An instance of the scenario is playing out in Seattle right now, as new owner Clay Bennett has announced his intention of moving the Sonics from Seattle to Oklahoma City, following the failure to reach an accord the financing of a new stadium in Seattle. The issue has been covered to death by media nationwide, with journalists such as ESPN.com columnist Bill Simmons weighing in on the situation. The issues at hand are complex, the different players all have different motivations. Whatever his tactics, Clay Bennett sincerely wants to get an NBA team for Oklahoma City. A pure profiteer would have accepted a compromise offer from Seattle a long time ago. But for NBA commissioner David Stern, a larger issue is at hand: the league must take a tough stance and stand beside with their franchises, or future venue proposals may be in jeopardy.

Supporters of the stadiums argue that the sophisticated infrastructure is the only way for teams to compete. But if everyone is making the same argument, a case could be made that this is nothing more than an arms race being paid for by someone else. But the venues continue to be built, a testament to the ability of the leagues to get what they want.

Charles Young is a junior at the School of Engineering and Applied Science majoring in applied mathematics and economics.
Sports@columbiaspectator.com