Unexpectedly Intriguing!
October 7, 2015

By now, we all know the stories of how the billionaires who own professional sports teams hold the cities of their teams hostage when they want to build new stadiums at public expense, threatening to move the team to another city if they don't get their way, and where all too often, state and local elected officials cave in to their demands.

The issue of public financing of sports stadiums comes up because of a bizarre and unintended consequence of the 1986 Tax Reform Act, where the U.S. Congress had sought to limit how much public financing could be used to build a stadium. Instead, they created a huge loophole for team owners, which created an extremely powerful incentive for them to exploit their connections with local politicians and their communities.

Here's how the loophole works. The U.S. Congress specified that no more than 10% of the revenue generated by a project built with public tax dollars could be repaid with revenues generated by the project, which for stadiums, would be money provided from the sales of tickets, concessions and parking. Because that was how the tax-exempt public financing that had previously been provided by taxpayers to build stadiums had been paid back, they thought that limit would cap the public's exposure to the growing costs of building more luxurious sports facilities.

Instead, it opened the floodgates because now, billionaire team owners could legally stick the public with up to 90% of the cost of their stadium building projects, because they're not allowed to provide more of a payback themselves under the law.

Combine that with the established role of sports teams in a community, which can extend to shaping its identity, and that's a recipe for exploitation, where instead of the cost of a sports stadium being paid by those who attend games is transferred to the general public, while the benefits go to the team.

The general public comes out on the short end of that deal, because that often means higher taxes and diverting funding away from other projects that the community would rather pursue and services they would rather have provided.

So what would happen if a city told the billionaire sports team owner playing that game to go ahead and leave town?

We know the answer to that question because there are two cities in Arizona that took very different paths with respects to the interests of major league sports teams that illustrate that alternative choice. The two cities are Chandler and Glendale, which are located on opposite sides of the Phoenix metropolitan area, where a number of major league baseball teams hold their annual spring training.

City of Phoenix: Maryvale Baseball Park - https://www.phoenix.gov/parks/sports/professional-sports/maryvale-baseball-park

The two cities have close to the same population and also have had very similar economic development paths, but the leaders of one, Chandler, had a choice back in the late 1990s to either give in to demands by the owners of the Milwaukee Brewers to either support building a new spring training facility in the city with public financing or deal with the situation of having the team pull up stakes and leave for other cities willing to pay for them to play in them. The city's leaders chose to let the Brewers leave.

In leaving, the Brewers obtained financial assistance to move to the city of Phoenix, where the city is reported to lose some $1.8 million annually in operating its Maryvale Baseball Park, where team's owner has continued to play the same hostage game - threatening to leave unless the city invests more taxpayer money in the facility.

Meanwhile, the leaders of the other city, Glendale, have pursued professional sports teams with a "borrow now and pay someday later" strategy, doing everything they can to bring as many professional sports teams and their facilities to the city as they can, which they've used as anchors for retail and other entertainment-related development projects aimed at drawing tourism dollars. Glendale has been very successful in achieving its leaders' major league professional sports dreams, attracting professional football, hockey and its own major league baseball teams for their spring training.

The difference between the two cities is that Chandler, freed of the blackmail strategies of the billionaire owners of professional sports teams, has boosted its public finances without the teams, focusing on expanding the diversity of its economic base with strong businesses rather than continually chasing sports-related tourism dollars. In the years since it told the owners of the Milwaukee Brewers "no", the city has improved its bond rating from AA- to AAA and has succeeded in doing other things to boost the community with the resources that had been tied up in the Brewers' old spring training facility, which has since been converted into a city park and is also where the old stadium has recently been razed to become the grounds for a new large residential development.

Glendale, on the other hand, has racked up so much public debt that the city's new leaders are being forced to make hard choices about what city services it will continue maintaining and how to fund them, as its bond rating has fallen from AA to BBB+ over time, which means it costs them more to borrow money as lenders and investors are increasingly skeptical of the city's ability to make good on its liabilities.

As a result, the city's leaders now live with the ongoing fear of having the teams they worked so hard to attract will walk out, thereby losing the sports and entertainment-related revenues they have become dependent upon to pay back the city's bondholders, as the city seeks to avoid bankruptcy court. The city, as some describe, ruined by sports, where outright hostility between the professional sports team owners and the city's officials has replaced the warm feelings that once defined their relationships.

The alternatives really don't get much clearer than that, do they?

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