Hockey or homes? - Michael Shapcott, Bread Not Circuses, Toronto

Tom Boland (wgcp@earthlink.net)
Fri, 16 Jul 1999 22:50:57 -0700 (PDT)


FWD

Michael Shapcott
Toronto, Ontario, Canada
Tel. - 416-367-5402
E-mail - mshapcot@web.net
Bread Not Circuses on the web:
http://www.breadnotcircuses.org

Date: Tue, 29 Jun 1999 13:47:39
From: Michael Shapcott <mshapcot@web.net>
Subject: Hockey or homes???


Hockey or homes???

The wealthy owners of Canadian hockey teams, the representative of wealthy
hockey players, politicians and bureaucrats have just ended a "hockey
summit" in Ottawa. On the table was the plea from the rich owners and rich
players for federal, provincial and municipal governments to ante up tens
of millions of dollars in either tax breaks or direct subsidies to hockey
teams and hockey facilities. A report of the summit from The Globe and Mail
is attached.

A few quick comments:

- the "hockey summit" is coming at a time when federal and most provincial
governments are, for the most part, refusing to commit much if anything on
the nation-wide homelessness disaster and housing crisis. There has been no
national homelessness summit, no plans to put federal or provincial money
on the table to bring people off the streets.

- the main argument of the wealthy owners and players for handouts from
government is that hockey is good for our Canadian souls and it's good for
the economy. I don't know about the first part, but all the studies
thoroughly discredit the notion that taxpayer investment in sports is a
good thing. I've attached excerpts from a Brookings Instutute study from
1997 to this message. Send an e-mail message to me and I'll sending along
an electronic copy of the full Brookings report.

- professional and "amateur" sport (such as the Olympics and other
high-performance sport) already receive huge government subsidies,
indirectly through the tax system and directly through the hundreds of
millions of dollars paid for the Calgary Olympics, the billion dollars or
more paid to the Montreal Olympics, plus facilities like the SkyDome (which
received hundreds of millions in direct and indirect subsidies from
taxpayers) and other venues.

- and, finally, if Ottawa is so worried that the heavy tax and other
subsidies paid by government to professional sporting teams in the United
States is so unfair, why don't they invoke the provisions of the North
American Free Trade Agreement or other trade deals? Canadians continually
get hit with trade rules over our domestic policies, maybe it's time for
the U.S. to get a taste of this. Therefore, instead of "levelling the
playing field" by increasing Canadian taxpayer subsidies to professional
sporting teams, let's call on the Americans to level the field by cutting
their taxpayer subsidies.

- Michael

---------------------------------------

The Brookings Institute

Are New Stadiums Worth the Cost?

by Roger G. Noll (professor of economics at Stanford University) and Andrew
Zimbalist (professor of economics at Smith College)

AMERICA IS IN THE MIDST of a sports construction boom. New sports
facilities costing at least $200 million each have been completed or are
under way in Baltimore, Charlotte, Chicago, Cincinnati, Cleveland,
Milwaukee, Nashville, San Francisco, St. Louis, Seattle, Tampa, and
Washington, D.C., and are in the planning stages in Boston, Dallas,
Minneapolis, New York, and Pittsburgh. Major stadium renovations have been
undertaken in Jacksonville and Oakland. Industry experts estimate that more
than $7 billion will be spent on new facilities for professional sports
teams before 2006.

Most of this $7 billion will come from public sources. The subsidy starts
with the federal government, which allows state and local governments to
issue tax-exempt bonds to help finance sports facilities. Tax exemption
lowers interest on debt and so reduces the amount that cities and teams
must pay for a stadium. Since 1975, the interest rate reduction has varied
between 2.4 and 4.5 percentage points. Assuming a differential of 3
percentage points, the discounted present value loss in federal taxes for a
$225 million stadium is about $70 million, or more than $2 million a year
over a useful life of 30 years. Ten facilities built in the 1970s and
1980s, including the Superdome in New Orleans, the Silverdome in Pontiac,
the now-obsolete Kingdome in Seattle, and Giants Stadium in the New Jersey
Meadowlands, each cause an annual federal tax loss exceeding $1 million.

State and local governments pay even larger subsidies than Washington.
Sports facilities now typically cost the host city more than $10 million a
year. Perhaps the most successful new baseball stadium, Oriole Park at
Camden Yards, costs Maryland residents $14 million a year. Renovations
aren't cheap either: the net cost to local government for refurbishing the
Oakland Coliseum for the Raiders was about $70 million.

Most large cities are willing to spend big to attract or keep a major
league franchise. But a city need not be among the nation's biggest to win
a national competition for a team, as shown by the NBA's Utah Jazz's Delta
Center in Salt Lake City and the NFL's Houston Oilers' new football stadium
in Nashville.

. . .

In our forthcoming Brookings book, Sports, Jobs, and Taxes, we and 15
collaborators examine the local economic development argument from all
angles: case studies of the effect of specific facilities, as well as
comparisons among cities and even neighborhoods that have and have not sunk
hundreds of millions of dollars into sports development. In every case, the
conclusions are the same. A new sports facility has an extremely small
(perhaps even negative) effect on overall economic activity and employment.
No recent facility appears to have earned anything approaching a reasonable
return on investment. No recent facility has been self-financing in terms
of its impact on net tax revenues. Regardless of whether the unit of
analysis is a local neighborhood, a city, or an entire metropolitan area,
the economic benefits of sports facilities are de minimus.

. . .

Sports facilities attract neither tourists nor new industry. Probably the
most successful export facility is Oriole Park, where about a third of the
crowd at every game comes from outside the Baltimore area. (Baltimore's
baseball exports are enhanced because it is 40 miles from the nation's
capital, which has no major league baseball team.) Even so, the net gain to
Baltimore's economy in terms of new jobs and incremental tax revenues is
only about $3 million a year--not much of a return on a $200 million
investment.

Sports teams do collect substantial revenues from national licensing and
broadcasting, but these must be balanced against funds leaving the area.
Most professional athletes do not live where they play, so their income is
not spent locally. Moreover, players make inflated salaries for only a few
years, so they have high savings, which they invest in national firms.
Finally, though a new stadium increases attendance, ticket revenues are
shared in both baseball and football, so that part of the revenue gain goes
to other cities. On balance, these factors are largely offsetting, leaving
little or no net local export gain to a community.

. . .

Promotional studies also fail to take into account differences between
sports and other industries in income distribution. Most sports revenue
goes to a relatively few players, managers, coaches, and executives who
earn extremely high salaries--all well above the earnings of people who
work in the industries that are substitutes for sports. Most stadium
employees work part time at very low wages and earn a small fraction of
team revenues. Thus, substituting spending on sports for other recreational
spending concentrates income, reduces the total number of jobs, and
replaces full-time jobs with low-wage, part-time jobs.

. . .

Whatever the costs and benefits to a city of attracting a professional
sports team, there is no rationale whatsoever for the federal government to
subsidize the financial tug-of-war among the cities to host teams.

In 1986, Congress apparently became convinced of the irrationality of
granting tax exemptions for interest on municipal bonds that financed
projects primarily benefiting private interests. The 1986 Tax Reform Act
denies federal subsidies for sports facilities if more than 10 percent of
the debt service is covered by revenues from the stadium. If Congress
intended that this would reduce sports subsidies, it was sadly mistaken. If
anything, the 1986 law increased local subsidies by cutting rents below 10
percent of debt service.

. . .

The final potential source of reform is grassroots disgruntlement that
leads to a political reaction against sports subsidies. Stadium politics
has proven to be quite controversial in some cities. Some citizens
apparently know that teams do little for the local economy and are
concerned about using regressive sales taxes and lottery revenues to
subsidize wealthy players, owners, and executives. Voters rejected public
support for stadiums on ballot initiatives in Milwaukee, San Francisco, San
Jose, and Seattle, although no team has failed to obtain a new stadium.
Still, more guarded, conditional support from constituents can cause
political leaders to be more careful in negotiating a stadium deal.
Initiatives that place more of the financial burden on facility users--via
revenues from luxury or club boxes, personal seat licenses (PSLs), naming
rights, and ticket taxes--are likely to be more popular.

Unfortunately, citizen resistance notwithstanding, most stadiums probably
cannot be financed primarily from private sources. In the first place, the
use of money from PSLs, naming rights, pouring rights, and other private
sources is a matter to be negotiated among teams, cities, and leagues. The
charges imposed by the NFL on the Raiders and Rams when they moved to
Oakland and St. Louis, respectively, were an attempt by the league to
capture some of this (unshared) revenue, rather than have it pay for the
stadium.

Second, revenue from private sources is not likely to be enough to avoid
large public subsidies. In the best circumstance, like the NFL's Charlotte
Panthers, local governments still pay for investments in supporting
infrastructure, and Washington still pays an interest subsidy for the local
government share. And the Charlotte case is unique. No other stadium
project has raised as much private revenue. At the other extreme is the
disaster in Oakland, where a supposedly break-even financial plan left the
community $70 million in the hole because of cost overruns and
disappointing PSL sales.

Third, despite greater citizen awareness, voters still must cope with a
scarcity of teams. Fans may realize that subsidized stadiums regressively
redistribute income and do not promote growth, but they want local teams.
Alas, it is usually better to pay a monopoly an exorbitant price than to
give up its product.

Prospects for cutting sports subsidies are not good. While citizen
opposition has had some success, without more effective intercity
organizing or more active federal antitrust policy, cities will continue to
compete against each other to attract or keep artificially scarce sports
franchises. Given the profound penetration and popularity of sports in
American culture, it is hard to see an end to rising public subsidies of
sports facilities.

To find out more, see Roger Noll and Andrew Zimbalist's edited book,
Sports, Jobs, and
Taxes: The Economic Impact of Sports Teams and Stadiums

The Brookings Review, Summer 1997 Vol. 15 No. 3, Pages 35-39
 1997 The Brookings Institution - All Rights Reserved.

---------------------------------------

The Globe and Mail

Optimism abounds in NHL aid talks

No solution to Canadian teams' problem found,
but presence of players' union seen as good sign

By David Shoalts, Hockey Reporter;
With reports from Kim Lunman and Brian Laghi

Tuesday, June 29, 1999

Toronto -- While their optimism sprang more from attendance than solutions,
the government and National Hockey League representatives who attended a
meeting yesterday said they feel good about the future of the small-market
Canadian NHL teams.

Representatives of the federal, provincial and municipal governments, the
NHL, the NHL players' union and the six Canadian NHL clubs met at an
airport hotel to discuss the need for economic help for the Canadian teams,
which have to pay most of their expenses in U.S. dollars but get most of
their revenue from the weaker Canadian dollar.

The discussions went well enough, with all present saying they want to be
part of the solution and that another meeting is planned for late July. "I
was very encouraged by the discussion today," said Ottawa Senators owner
Rod Bryden, who went into the meeting saying that unless his franchise
receives some form of economic relief it will be moved to the United States
by the start of the 2000-01 season.

Bryden said his club lost $10-million last season and unless its total tax
bill is lowered from its current $37-million to $24-million, the team will
have to move. "I'm optimistic something will happen to allow the team to
stay in Ottawa," Bryden said.

Just what will happen, though, is for future discussions, the participants
said. It was enough that everyone agreed the Canadian teams face serious
problems competing with U.S. teams that pay less money in taxes and have
more tax breaks.

The issue of tax relief for wealthy NHL club owners and players is a touchy
one in Canada. However, efforts by Bryden have moved the federal government
from opposing outright tax relief to saying it's willing to provide some
kind of economic support as long as the provinces and cities with NHL teams
chip in along with the league and the NHL Players' Association.

"My position hasn't really changed," federal Industry Minister John Manley
said. "We will be part of the solution, but we're not willing to be the
whole solution. I don't think anyone has put this in the context of tax
breaks for anyone."

It appeared the major reason why everyone came out of the meeting on an
optimistic note was simply the presence of the NHLPA. Bob Goodenow, the
union's executive director, has made it clear the players will not be
volunteering for pay cuts or salary caps. At one point, it appeared
Goodenow and the NHLPA would not participate in the conference. But he was
an active participant in yesterday's meeting and plans to attend future
meetings, although he declined to say what the players' part of the
solution would be.

"We're here in support of the six Canadian clubs and the NHL," Goodenow
said. "The discussion focused on the levelling of the playing field between
the [U.S.] and Canadian teams. We had discussions about a few points. It
would be very premature of me to deal with that as to specificity."
Goodenow said the NHLPA "can be part of the solution. Sixty per cent of our
members, approximately, are Canadian. They feel strongly that the game is a
big factor in this country."

Just what the NHLPA would contribute to any economic solution wasn't clear.
However, the NHL owners don't expect any concessions from the union. "I
don't think there's anything specific the NHLPA can do," Bryden said. "You
can't ask their Canadian members to take a 20-per-cent pay cut [by getting
paid in Canadian dollars if they play in Canada]. I don't think you can ask
the workers in any industry to do that."

The government support ranged from warm to tepid. Alberta Gaming Minister
Murray Smith was the only provincial cabinet minister present, as British
Columbia, Ontario and Quebec sent senior civil servants instead. Edmonton
Mayor Bill Smith said "the people of Edmonton have already spoken up
through supporting the SkyReach Centre to the tune of $2.5-million a year
[in tax relief]," while the B.C. government repeated its opposition to
outright tax breaks.

"We have no intention of helping," B.C. Premier Glen Clark told reporters
in Victoria yesterday. "We're not going to give them any tax money
whatsoever as long as I'm here. This is an owner who has built a big
stadium which is losing money and [is] paying multimillion dollar salaries
to players and then comes to the government for help."

However, Clark said the province wants the Vancouver Canucks to stay in
Vancouver and will work with the club but not give it any money. "They
provide a lot in tax revenue and excitement and jobs in Vancouver," Clark
said. "We'd love to see them stay and we'll work hard, but we're not going
to provide any special incentives or tax breaks."

In Ottawa, Reform Party Leader Preston Manning said, "We would support
broad-based tax relief for everyone which would also help the NHL, but not
a targetted NHL package."

Manley said that without the support of every province with an NHL team,
plus the league and the union, yesterday's meeting will not lead to any
answers. "This can't be a unilateral federal-provincial solution," he said.
"I can say with assurance that if none of those provinces are interested in
contributing to a solution, neither will [the federal government]."

Once they agreed that the problems facing teams such as the Calgary Flames,
Edmonton Oilers and the Senators are severe, the participants spent the
second half of yesterday's meeting discussing possible solutions. There was
an agreement not to reveal any details. It appears the answers will come
through giving teams things such as a share of provincial lottery funds
rather than direct tax breaks. Manley denied a Globe and Mail report that
the federal government is willing to provide $15-million a year, although
he indicated it's willing to contribute something.

Among the possible solutions discussed yesterday, and which will be
explored in the next meeting, are handing over some of the provincial
lottery revenues, which had total sales in Canada of $5.5-billion in
1996-97. Sales related to hockey were $172-million. Some hockey owners are
looking at the $51-million paid to the federal government every year by the
provincial lotteries as part of a 1979 deal that saw Ottawa drop out of the
lottery business.

The NHL is hoping for accelerated tax writeoffs for clubs in privately
owned buildings. This would not be for teams such as the Flames and Oilers,
who play in publicly owned arenas, but one proposal would see a pool
created from the tax refunds, with all clubs possibly sharing it.


-------------------------------

Michael Shapcott
Toronto, Ontario, Canada
Tel. - 416-367-5402
E-mail - mshapcot@web.net
Bread Not Circuses on the web:
http://www.breadnotcircuses.org

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