The Shady Price of American Soccer
For American fans of soccer, it is time to celebrate. The U.S. Women’s National Team just won their third World Cup, soccer is rapidly gaining mainstream status, and new Major League Soccer stadiums are being constructed across the country. City residents should also start getting excited about soccer’s growth, because they are paying for it.
In 1923 the Los Angeles Memorial Coliseum opened as the country’s first publicly funded stadium. Since then, taxpayers have spent more than $31 billion building new stadiums for private sports teams. Almost all of this spending has gone to baseball, football, hockey, and basketball teams, but soccer teams are now trying to make a play for a subsidy of their own.
In Washington, DC, Mayor Muriel Bowser and the city council approved a deal on June 8th to help fund a new stadium for the local soccer team, DC United. The stadium is set to open for the 2017 season and is estimated to cost $286.7 million, making it one of the most expensive soccer venues ever planned in the United States. To persuade the team’s owners to build in the District, the city offered to pay $150 million, or 62 percent, of the cost of construction. The District has committed to buying land for the stadium, preparing the site, and building necessary infrastructure.
The District’s decision to subsidize construction is a waste of taxpayer money. According to a report commissioned by the city, the project would bring in $109.1 million in tax revenue. A sound rule of investing is that people should put less money into a project than they intend to make. The city chose to completely ignore this advice and stands to lose more than $40 million on the project.
But city officials claim the stadium is worth the cost because it would bring jobs to the District and help develop a depressed area. The city’s report claims that the project, along with the construction of two smaller buildings, would inject an estimated $2.6 billion into the local economy.
A $2.6 billion stimulus package for Washington would be highly successful if it came with a price tag of $150 million, but this payoff is unrealistic. Study after study has shown that stadiums rarely provide the benefit their supporters assert they come with and often have hidden costs.
From the moment construction begins on publicly-funded stadiums, taxpayers tend to get stuck with the bills.
To obtain the land for the project, the city government must forcibly take property from landowners using eminent domain. While the Fifth Amendment requires that the land be taken only for “public use,” the property for publicly funded stadiums is given directly to private entities.
The Constitution also provides that land may not be taken “without just compensation.” Yet local governments rarely pay landowners the compensation they believe they deserve. In 2005, the District seized 16 owners’ property to build Nationals Park and destroyed several local businesses in the process. To build DC United’s new stadium, the city will almost certainly use eminent domain to take possession of land owned by Akridge, a local developer that has plans of its own for its property.
Once the stadium is built, promises of massive economic development rarely play out. When Chester, Pennsylvania, made a deal to subsidize the construction of the Philadelphia Union’s soccer stadium, it expected that development would follow. Yet, since its completion in 2010, the stadium has not lived up to its billing as the savior for a struggling community. It has brought almost no new business to Chester at the cost of millions of dollars in tax revenue. A study by Dennis Coates and Brad Humphreys for the International Association of Sports Economists confirms that stadium construction almost never brings cities economic benefits and can even reduce economic wellbeing.
When a stadium does spur development it comes with other hidden economic costs. In a separate paper for AEI, Humphreys points out that consumer spending on sports simply trades off with other types of entertainment spending. When a new stadium is built, it will bring in revenue but consumer spending on other sports teams, movie theaters, or restaurants will decline. Subsidizing stadium construction just redistributes revenue from one portion of the entertainment industry to another. The area around DC United’s new stadium may benefit, but the rest of the region will have to pay the price.
Even if the new soccer stadium were guaranteed to come with massive economic benefits, including revenue flows, DC still should not have to subsidize its cost. Teams have pitted cities against each other to obtain lucrative subsidies. They threaten to leave their hometowns unless they are given subsidized stadiums. This creates a bidding war between cities for teams. If a team’s hometown refuses to pay up, voters will revolt against lawmakers who let their favorite team escape to rival cities. If no city subsidized stadiums, teams would almost certainly stick around in their hometown and fund their stadiums privately. DC United’s owners are collectively worth over $1 billion; there is no reason they need a handout from taxpayers.
To end this runaway cycle of spending, cities must promise each other that they will stop handing out subsidies. Soccer is a wonderful sport. I hope it grows, just not on my tax dollar.
Patrick Holland is a contributor for Economics21. Follow Patrick on Twitter here.
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