Applying Free Market Logic to an Unfree Market?

Tech Central Station

December 22, 2004

The nation’s capital has been distracted this week by an issue more compelling than terrorism, the war in Iraq, Social Security reform, or Bernard Kerik’s love life: the fate of Major League Baseball in D.C. At the 11th hour last Tuesday evening, the city council approved a bait-and-switch bill proposed by Chairman Linda W. Cropp that approved funding for a stadium for the Washington Nationals, the relocated Montreal Expos, on the condition that private financing be secured for half of the cost. Given that the deal Mayor Anthony Williams signed with MLB was for one hundred percent public financing, this created a frenzy.

Major League Baseball President and Chief Operating Officer Bob DuPuy reacted immediately, proclaiming “The legislation is inconsistent with our carefully negotiated agreement and is wholly unacceptable to Major League Baseball.” He then signaled that the deal was likely off:

“Because our stadium agreement provides for a December 31, 2004 deadline, we will not entertain offers for permanent relocation of the club until that deadline passes. In the meantime, the club’s baseball operations will proceed, but its business and promotional activities will cease until further notice. We thank the fans of Washington, D.C. for their support and enthusiasm, but given the present uncertainty, any ticket purchaser who entrusted us with a deposit may request a refund through the club’s ticket office.”

The jocks on local SportsRadio 980 and the D.C. sportswriters were apoplectic. The venerated Washington Post columnist Tom Boswell had many stern words for Ms. Cropp and opined that “the return of major league baseball to the nation’s capital is now dead.”

Many were overjoyed, however, that the Council balked at funding a stadium, at the potential cost of over $600 million, out of public funds. Syndicated columnist Michelle Malkin, upon hearing of the deal in September, dubbed it “the mother of all stadium boondoggles.” She succinctly lays out the libertarian argument against government financing:

“The government has no business picking winners and losers in the private sector. It has no business taking people’s hard-earned money to prop up art which offends them, professional sports which bore them, or recreational activities which they consider a waste of time.”

Cato Institute analyst Radley Balko goes further:

“It is not the legitimate function of any government, in libertarian eyes, to take money from one group of people and give it to another group of people (wealthier people, yet), to make a third group of people marginally happier. It’s wrong. That understates: it’s evil.”

Others object to the view that Cropp and her Council colleagues had no right to modify the deal Williams negotiated. Blogger Jim Henley correctly notes that,

“At just about any level of American government, the executive can propose any spending plan or law he wants subject to constitutional review, but only the legislature can authorize it. This is Schoolhouse Rock-level civics. ‘We’ did not have a deal. The Mayor’s Office had a deal. The City did not ‘have a deal’ until said deal was voted into law. At that point, a deal exists. No approval? A deal does not exist.”

Washington Post metro columnist Marc Fisher agrees, adding that the mayor was rather arrogant in his handling of the matter, “Instead of selling the agreement to a properly skeptical public, instead of bringing Cropp and the rest of the council along at every step of the negotiations, Williams spent week after week gallivanting around the globe on his own unchecked ego adventure.” Regardless, sensing that baseball was indeed prepared to scuttle the deal, Cropp reached a fig leaf compromise deal on Monday evening.

Many others object to public financing of sporting arenas, not so much on philosophical grounds, but on economic ones. Dennis Coates and Brad R. Humphreys study the issue for the Cato Institute and report,

“Our conclusion, and that of nearly all academic economists studying this issue, is that professional sports generally have little, if any, positive effect on a city’s economy. The net economic impact of professional sports in Washington, D.C., and the 36 other cities that hosted professional sports teams over nearly 30 years was a reduction in real per capita income over the entire metropolitan area.”

A baseball team in D.C. might produce intangible benefits. Rooting for the team might provide satisfaction to many local baseball fans. That is hardly a reason for the city government to subsidize the team. D.C. policymakers should not be mesmerized by faulty impact studies that claim that a baseball team and a new stadium can be an engine of economic growth.

Several national sportswriters, for whom public financing of stadia has long been a hobbyhorse, weighed in as well. For example, ESPN’s Jim Caple observes

“We all know that stadiums rarely spur economic development. We all know they often don’t lead to success in the standings (the Brewers have finished fourth, last, last, and last since Milwaukee’s new stadium opened). The only guarantee to a new stadium is the profits it generates for the owners. When teams from the Giants to the Cardinals are paying a majority of their stadium costs, it’s the height of greed and arrogance to insist a Washington owner doesn’t need to contribute significantly to the construction of a stadium.


“Despite the howls of D.C. Mayor Anthony Williams and other stadium supporters, the deal isn’t dead. There is a private funding source readily available — the new owner. Baseball simply has to be willing to take less money for a team that it gutted and turned into a punch line over the past decade. And after all the money it has already invested in the Expos saga, it can also afford to take a little less money now in order to get the new franchise started on the right foot.”

While Caple is right, he and other stadium financing opponents ignore a key reality: Big time sports are not, strictly speaking, a free market. Because there are a limited number of Major League (or NFL or NBA) teams, the owners have unusual leverage. Post columnist and ESPN talk show host Michael Wilbon notes,

“For more than 30 years, D.C. has been a beggar. The District tried to steal other folks’ teams. The city and its representatives lobbied for expansion teams. Baseball team owners used the threat of moving to D.C. as leverage to get shiny new publicly funded stadiums and stay put.”

 The last twenty-odd years of the National Football League provide an interesting case study:

As this cycle of city/stadium roulette illustrates, there is tremendous desire for a professional team. The mere threat of relocation has secured several teams better stadium deals. Several cities — Oakland, Baltimore, St. Louis, Cleveland, and Houston — that declined to pay up to keep their current teams wound up paying even more a few years later to lure other teams or secure an expansion team. Charlotte and Jacksonville competed with former NFL cities and others who hoped to be elevated to “big league” status to obtain their franchises, and had to provide substantial funding for a state-of-the-art facility to win their bids.

Several teams, including the Minnesota Vikings, Indianapolis Colts, New Orleans Saints, and San Diego Chargers have been rumored to be eying a move to Los Angeles if they can secure a better stadium deal. Just this week, Indianapolis Mayor Bart Peterson announced a half billion dollar stadium deal to keep the Colts in town, stating forthrightly “It’s not my first choice but the alternative in this case is, do you want the Colts to leave?” Granted, the NFL is more popular than MLB these days. On the other hand, a Major League team will play a minimum of 81 home games every year, as contrasted with eight in the NFL.

While libertarians rightly bemoan the notion of forcing taxpayers to subsidize wealthy team owners, they should understand that the market works both ways. If sports leagues have the leverage to demand public financing of stadia as a precondition for moving a franchise to a city, they would be foolish not to use it.

Luring a professional sports team is difficult and generally not economically smart. It is rather galling that the vast majority of a town’s residents who will never attend a game are forced to pay for the privilege of added traffic congestion. Nonetheless, there are plenty of cities out there begging for a team. Public subsidies for arenas are the cost of playing.

Original article