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Will Taxpayers Pick up the Cost of Relocating the Raiders?

5 min readBy: Jared Walczak

“Here’s a guy who, when he runs, he moves faster” – John Madden.

The former Raiders coach and football commentator was a master of saying the obvious, but sometimes it’s necessary to say the obvious. For instance: taxpayer subsidization of stadium projects is in the best interest of stadium and franchise owners, not taxpayers.

Nevada Governor Brian Sandoval (R) recently signed legislation levying an additional 0.88 percent tax on lodging within a 25-mile radius of a proposed new stadium intended to bring the Oakland Raiders to Las Vegas. Should the National Football League (NFL) approve the relocation, which could happen as early as January, the state of Nevada would cover $750 million of the cost of stadium construction. A further $650 million would come from casino magnate Sheldon Adelson, who hopes to become a part owner of the Raiders, while the team itself would pitch in $500 million.

According to a report released by Governor Sandoval’s office, the Nevada Department of Transportation would also need to accelerate at least $899 million in transportation improvements, though these projects are already in the Department’s long-term plan.

A $750 million commitment to bring an NFL franchise to Las Vegas is a major lift for the state, and advocates have pushed it largely because the project is unlikely to be profitable on its own. Adelson, for instance, rejected the idea of raising his own commitment if public funding fell through, saying that he wouldn’t do it because “the cost is too high and we won’t be able to do it without that amount. It would increase the required size of the equity investment to the point where it would be unfeasible.”

Proponents of public funding of stadiums often lean on the much-hyped multiplier effect: that stadiums draw crowds that not only purchase tickets, but also frequent restaurants and hotels, use local transportation systems, and otherwise support the local economy. These positive externalities, they argue, coupled with the hedonistic benefit of having local sports teams, justify public subsidies. Increasingly, however, a healthy skepticism has reentered the conversation as promised benefits have failed to materialize.

The first forays into the “stadium game” came in the heady days of the Roaring Twenties, when Los Angeles, Cleveland, and Chicago constructed the Coliseum, Municipal Stadium (“The Mistake by the Lake”), and Soldier Field in Olympic bids, each failing and winding up with stadiums that stood unused for years. After that false start, public financing would not begin again in earnest until the New York Giants and the Brooklyn Dodgers, winners of the 1955 World Series, abandoned New York for Los Angeles after receiving an offer of a city funding package for a new stadium.

Nearly 80 percent of all professional sports facilities in the U.S. were replaced or underwent major renovation between 1987 and 2005, with 71 percent of the funding coming from government coffers. But for governments, the numbers never added up: in 1997, all amusement and recreational services combined—a category in which professional sports is just one of many components—accounted for a mere 0.06 percent of the more than 55 million jobs located in counties populated by more than 300,000 persons. These jobs accounted for “one-tenth of 1 percent of the $1.5 trillion in income reported for these 161 counties.”

The multiplier effects bandied about by proponents increasingly became viewed as unreliable if not ridiculous. Many residents near a new stadium would have spent money on leisure goods with or without a sports team; their expenditures are largely substitutionary, with residents shifting their leisure spending, not adding to it. And consider this questionable explanation of how the out-of-town visitor multiplier effect tended to be calculated for baseball stadiums:

For most teams, five to 10 percent of the people who attend the game don’t actually live in that area. So what you do then is assume that these people came to town for the purpose of seeing the game and staying the average duration of a tourist visit. Then you multiply those days by the total expenditures that people spend on vacation. That means one person buying a $25 ticket to a game causes you to add $1,000 to the economic impact of the team.

Add to this the fact that, according to the Cato Institute, players and coaches receive about 55 percent of the value of any given sports subsidy, while the bulk of what remains redounds to owners—what is sometimes called the “leakage effect,” since owners and players often reside, and therefore spend, outside the community—and any supposed benefit to localities vanishes with astonishing speed.

And that’s assuming that the team succeeds. Asked whether a Las Vegas team could have a devoted fan base, Adelson conceded, “It’s very difficult to say. … The people that come to town come with their fandom. They are fans of the teams from the cities from which they come. Would they be a fan of a local team? I’ve thought about that, and I think they could be. They may not be as enthusiastic or want to spend the same money they would on the team they’ve supported for decades, but they certainly would go to the stadium when their former hometown team comes in.”

Not, perhaps, the most ringing endorsement. Stanford economist Roger Noll, an expert on stadium subsidies, speculated recently that current wave of stadium proposals may mark the end of an era of public funding of large, “modern” stadiums. He may be right, but—assuming NFL owners sign off on the move—taxpayer funding of stadiums will have at least one last gasp in Vegas.

With characteristic insight, Madden once observed that “usually the team that scores the most points wins the game.” Make it owners 1, taxpayers 0.