The Louisiana legislature has approved a bill that would continue to provide taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. breaks to the NBA’s New Orleans Hornets. The tax credits, $37 million over ten years, are part of the state’s Quality Jobs economic development program. The bill now goes to Governor Jindal for approval. According to the Times-Picayune, the bill is part of a larger deal:
The bill is part of the package of concessions the state made in negotiations to keep the National Basketball Association franchise playing at the Arena through at least 2024, and possibly 2029.[…]
The new contract between the NBA and the state also requires the state to come up with $50 million to $60 million in capital construction money to renovate the Arena during the next two years to make room for more expensive seating and box suites that Hornets management can sell.
The new deal also reduces a state attendance subsidy to the team. Under the previous agreement, the state had to pay the team up to $8 million per year if fan attendance was low. The potential annual subsidy has been reduced to $2.8 million in the new deal.
Stadium and sports team subsidies are fairly common, but many economists criticize the underlying economics. The claims of economic benefits tend to be exaggerated and usually leave out the fact that much of the economic activity associated with a sports team is likely to be shifted from other entertainment sectors. And, as is all too common with many analyses of economic development incentives, opportunity costs are ignored. Economists Andrew Zimbalist and Roger Noll summarized their findings in 1997 after studying sports subsidies around the nation:
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.
Clearly the Governor would not be justified in approving this deal based on the economic literature. Some subsidy proponents have responded to these criticisms by citing difficult-to-quantify intangible benefits, such as local pride and national prestige. However, if this is the best argument that proponents have, states and cities should be wary of continuing to dump money into sports subsidies.
For more on public funding for stadiums and convention centers, see:
Sen. Obama Wrong About Economics of Sports Stadiums
Tax-Funded Raleigh Convention Center Subsidizing Conventions to Get Business
As the Stadium Deal Turns
Taxpayers Should Cry Foul Over Stadium Subsidies
D.C. Mayor to Divert Dedicated Funds from Stadium