Should the city and county be offering public subsidies to private investor Chris Hansen and his yet-to-be-revealed partners, who propose building and operating a pro basketball and hockey arena in Seattle's SoDo area? Proponents say those subsidies, in the form of municipal bonds totaling hundreds of millions in public debt backed by local governments, are required to make the deal feasible.
What's more, boosters say we better grab this deal quick or we risk losing it. That notion is hard to square with Hansen's own statements that he is "willing to be very patient."
How to sort out these claims? Some help comes from a recent research report from a prominent investment bank, UBS, to its own wealthy clients. The report makes a surprising case against claims that a public subsidy is necessary or that these facilities pay off for the broad public.
The report in question comes from UBS Wealth Management Research, whose April assessment offers a frank analysis of stadium financing subsidies and related municipal bonds across the U.S. The 35-page report, called "Batter Up: Public Sector Support for Professional Sports Facilities," concludes that there is no broad economic benefit from most stadium deals. It also finds that public financing mostly props up the ever-inflating value of privately-owned sports teams. Further, that the deals skew the benefits toward a "relatively narrow group of individuals" (the franchise ownership and the sport’s spectators). The report goes on to assess the quality of various stadium finance bonds across the country.
Here are some notable quotes from the report, made all the more telling because they come from advisers to the ultra-wealthy:
"Unfortunately, independent academic research studies consistently conclude that new stadiums and arenas have no measurable effect on the level of real income or employment in the metropolitan areas in which they are located. Feasibility studies for professional sports facilities often fail to account for the substitution effect. Individuals generally maintain a consistent level of entertainment spending so money spent on sporting events typically comes at the expense of cash spent in restaurants, on travel, and at movie theaters."
"Capital expenditures associated with a new arena and sports stadium are directed towards a relatively narrow group of individuals (the franchise ownership and the sport's spectators).... The resulting infrastructure is not easily convertible for other uses and plainly does not provide the same broad societal benefits associated with an airport, highway, or public utility improvement."
"The use of public subsidies to underwrite the cost of construction for a new stadium or arena was a contributing factor in the rapid increase in the valuation of sports franchises."
The report goes on to cite "consistent evidence that subsidies are counterproductive in the long run" yet the advisers expect the subsidy model will continue, for the most part, while highlighting some exceptions that show that public subsidies through bond financing are not always necessary, and noting that "In at least one instance, public opposition has dictated a private sector solution."
The city that chose not to subsidize wealthy team owners with hundreds of millions in government debt? Chris Hansen's own San Francisco, where private interests built AT&T Park, a baseball facility, without using public bonding debt, after voters repeatedly rejected subsidies for the stadium.
Now San Francisco appears to have done its next stadium deal — this time for basketball — also without public bonding debt. Last February, Mayor Ed Lee offered terse words of advice for owners of the NBA's Golden State Warriors, as they sought to fund and build a new arena: private financing. Just a few days ago, a package was announced to build a privately financed new arena on Piers 30-32, without issuing any government bonds, "rather than stress the taxpayer. That's not fair," said team owner Joe Lacob.
In at least these two recent cases on the West Coast, financing for pro sports arenas without the use of local government bonding has penciled out just fine. Of course, every stadium package has its own investors of varying strength, its own deal point complexities. But on the whole, Hansen and his group cannot reasonably claim that issuing hundreds of millions in government debt financing and subsidies is essential to getting stadia built, at least in today's economic context.
