Tax Analysts Blog

NFL Encourages Localities in Race to the Bottom

Posted on Dec 2, 2013
The NFL’s tax-exempt status has come under attack recently because of a book by Gregg Easterbrook targeting what he calls the league’s “fleecing” of taxpayers. But the controversy over whether the league office should be tax exempt is largely academic -- there isn’t much there to tax (unlike its member teams, the NFL actually loses money). Policymakers, particularly at the state and local levels, should be focused on the tax favors that are reflexively granted to NFL and other professional sports teams for stadium construction and as incentives not to relocate.

Easterbook estimates that tax favors granted to the NFL total $1 billion per year. Almost all of that is in the form of publicly financed stadium construction or property and other tax rebates granted as part of stadium deals. Since 1997, 20 NFL teams have built or renovated stadiums. Nineteen of the 20 have involved public money. The exception is the $1.6 billion stadium built in New Jersey by the New York Jets and Giants. That exception aside, the public has provided 71 percent of all financing for NFL stadium construction.

Most stadiums are financed by tax increases. That’s right: Localities and states frequently raise hotel or other taxes to provide some or all of the hundreds of millions of dollars needed to build a modern sports stadium. Lucas Oil Stadium, built for the Indianapolis Colts, was 86 percent publicly financed. The $620 million public component comprises a 0.5 percent city sales tax increase, a 2 percent city hotel tax increase, a 5 percent city car rental tax increase, a 10 percent admissions tax, a 3.5 percent parking tax, and $25 million from the county. Other forms of tax favors frequently granted include property tax rebates (for stadiums that are owned by the team rather than the government), sales tax rebates, infrastructure improvements, and, most notably in the case of New Orleans, straight-up operating cost grants to team owners. (New Orleans Saints owner Tom Benson is paid $6 million annually by Louisiana as an inducement not to move his team.)

When a stadium is publicly financed, it might be assumed that local governments are simply making an investment in a revenue-generating structure. However, most publicly financed projects allow teams to keep virtually all ticket, concession, and parking revenue. The public is building stadiums for wealthy team owners, and then essentially passing all the benefits of the new facility to the team. (And when those teams move, the stadiums are frequently demolished, as will happen with Turner Field when the Atlanta Braves move to a local suburb in a few years.)

So what’s in it for the public? Most people would argue that there is little economic impact from a new sports stadium, meaning the main benefit to localities is the security of keeping their team for at least a little while longer. Easterbrook and others call this extortion. And that’s not far from the truth. As a stadium ages, a team owner typically starts making noise about needing something new. When officials drag their feet, the team either openly or subtly implies that it might seek a better home (read: one that will build it a new a stadium).

Easterbrook calls moving a hollow threat, at least in the NFL. He points out that no professional football team has relocated since 1998. This is somewhat misleading. While it’s true that no team has made a long-distance move since the Oilers left their temporary home in Memphis for Nashville in 1998, teams have moved locally in recent years. For example, San Francisco is losing the 49ers to Santa Clara because it refused to negotiate over a new stadium. That isn’t a big move, like the Los Angeles Rams moving to St. Louis, but it still creates incentives for localities to bid against each other to keep or attract a team.

And that’s the real problem with tax favors granted to the NFL and other sports leagues. The race to the bottom by states and cities hurts taxpayers. It is no different than the often ludicrous tax benefits and favors provided to corporations for headquarters or factory construction. Providing tax favors to business causes local and state governments to compete against each other, which benefits only a small part of the public while hurting everyone else. Tax competition has severely undermined state finances, and has even become an issue at the international level. But tax favors and tax increases designed to benefit an immensely profitable sports league may be the most egregious and most difficult to defend.

Read Comments (2)

Patrick MackinDec 2, 2013

Saying that no NFL team has moved since 1998 is completely misleading, given
that the Browns, Rams, Raiders & Oilers had just moved in the mid 1990s.
Easterbrook's larger point, that the NFL gouges local governments for stadiums,
is completely correct.

edmund dantesDec 2, 2013

When cities and states compete to be the home of a pro sports team, I call that
free markets at work. Some civic leaders and citizens value those teams more
than others. They bid for the hosting opportunity in many ways, including
construction subsidies (which provide direct local employment) and relief from
high tax rates. The teams make the best bargain they can, the cities decide
what they are willing to pay.

I don't see any compulsion going on here, so it's not really extortion. You
can't blame the teams for trying to get the best deal that they can. You can
question the judgment of people who think having a local team to root for adds
to the quality of life--I'm not a sports fan. But a great many people seem to
get a tremendous amount of joy from them.

Ever notice how many obituaries refer to the deceased's favorite team as
"beloved?" I first noticed this when Tim Russert died, and all references to
his "beloved" Buffalo Bills. To me, there is nothing beloved about
entertainment, but I may not be an average American.

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