Let's Eliminate Sports Welfare - Patrick Hruby
Let's Eliminate Sports Welfare
Fellow taxpayers: It's time to take a stand against government giveaways for sports
By Patrick Hruby | Sports on Earth | December 2012
Perhaps you’ve heard the news: America is barreling toward a self-induced “fiscal cliff” of federal tax hikes and spending cuts, largely because Democrats and Republicans can’t agree on how to make the nation’s budget moderately less unbalanced. On one side, President Obama wants to raise money by increasing taxes on the wealthiest Americans; on the other, House Speaker John Boehner wants to reduce costs by slashing social welfare programs. Both men and their respective parties seem stuck at an ideological impasse -- think who’s better, Barry Sanders or Emmitt Smith? only with the world economy at stake -- and yet each camp is ignoring an obvious way out.

Well, maybe not a way out. But definitely a way forward. An easy, overdue fix to the nation’s fiscal woes. A course of action rock-ribbed liberals and hardcore conservatives can agree on. A policy shift that would not only save cash, but also act as a trust-building, goodwill-generating building block toward larger, harder and more essential partisan compromise.

Eliminate Sports Welfare.

During the recent presidential race, Mitt Romney was pilloried for his surreptitiously recorded remarks that “47 percent” of Americans are “dependent upon government,” believe that they are “entitled to … you name it” and will never be persuaded to “take personal responsibility and care for their own lives.” Romney was wrong about the 47 percent. (Disagree? Send your hate mail here before going Galt.) But he was right about the country hosting a system-gaming moocher class, an entitled, irresponsible, parasitic piglet subset, lazily suckling from the public teat, pulled up by shiny new bootstraps purchased with government giveaways, forever hiding in plain sight.

To find them, just flip on ESPN.

Or better still, visit any sports stadium.

They’re the team owners sitting in luxury boxes built with taxpayer dollars, charging PSL fees for seats constructed with the same. They’re the athletes writing off fines for bad behavior. They’re the multimillion-dollar professional leagues, Ozymandias-shaming college athletic departments and -- ahem -- charitable bowl games all enjoying lucrative and dubious non-profit status.  Their ranks include Tiger Woods, whose namesake foundation once received a $100,000 federal grant; the Baseball Hall of Fame, which pocketed $1.57 million in federal funds between 2002 and 2006; and the Greater Syracuse Sports Hall of Fame, which seven years ago was given $75,000 as part of a larger appropriations bill funding the Departments of Veterans Affairs and Housing and Urban Development. (Additional point of incredulous outrage: The Greater Syracuse Sports Hall of Fame doesn’t even include Jim Brown.) They are the underserving beneficiaries of inappropriate, unnecessary public subsidy, feathering their overstuffed nests of downy-soft private profit, adding to America’s astronomical charge card bill all the while. They are the Welfare Kings (hi again, Jeffrey Loria!) and Queens (rest in peace, Georgia Frontiere!) of sports, crying poor while grifting and lifting society’s collective wallet, perpetually grabbing for more, more, more.

And they are legion.

Consider stadium subsidies. When Kubla Khan built his stately pleasure dome above a sunless sea, he did not strong-arm the Xanadu County Board of Directors into funding the project by threatening to move to Los Angeles. His mistake. He wouldn’t last five minutes as an American sports owner. According to Harvard professor Judith Grant Long and economist Andrew Zimbalist, the average public contribution to the total capital and operating cost per sports stadium from 2000 to 2006 was between $249 and $280 million. A fantastic interactive map at Deadspin estimates that the total cost to the public of the 78 pro stadiums built or renovated between 1991 and 2004 was nearly $16 billion. That’s enough to build three Nimitz-class nuclear-powered aircraft carriers. Or fund, in today’s dollars, 15 Saturn V moon rocket launches -- three more than the number of launches in the entire Apollo/Skylab program. It’s also more than what Chrysler received in the Great Recession-triggered auto industry bailout ($10.5 billion), and bigger than the 2010 GDP of 84 different nations. How does this happen? Simple. Team owners ask for public handouts and threaten to move elsewhere unless they get them, pitting cities against in each other in corporate welfare bidding wars -- wars rooted in the various publicly granted antitrust exemptions that effectively allow sports leagues to control and maintain a limited supply of teams to be leveraged against widespread demand.

“It’s like this magic alchemy where we take all this public money and it morphs into private profit,” says Dave Zirin, author of “Bad Sports: How Owners are Ruining the Games We Love.” “The most egregious example of this is the Seattle Sonics going from the 14th biggest [media] market in the country to Oklahoma City, a market that is No. 45. Why did that move make sense? One place offered corporate welfare and another didn’t. The NBA punished a city for not giving them hundreds of millions of dollars.”

Of course, you probably know this already. You probably know that of the reported $100 million Indianapolis Colts owner Jim Irsay deigned to spend on Lucas Oil Stadium -- opened in 2008 for a cool $720 million, with the public picking up the bulk of the tab -- nearly half came from taxpayers buying out the team’s lease on the old RCA Dome. (When it comes to double moves, Reggie Wayne has nothing on The Mad Tweeter.) You probably know that Minnesota Vikings owner Ziggy Wilf -- a man personally worth more than $1 billion -- just negotiated ransomed his way into $498 million in state and city funding for a new stadium. You probably know that Miami-Dade county ponied up roughly $500 million for the Miami Marlins’ new stadium -- including $2.5 million for an animatronic outfield fish statue -- by issuing bonds that eventually will cost the public $2.4 billion, a deal so resoundingly popular and transparently above board that, a) the Securities and Exchange Commission launched an investigation, and b) Miami mayor and stadium advocate Carlos Alvarez subsequently lost in the largest recall of a local politician in United States history. Heck, you probably know that as of two years ago, the good people of Houston, Seattle, Indianapolis and New Jersey were still paying off dark caves and holes in the ground -- that is, NFL stadiums that already had been decommissioned or demolished.

What you don’t know is that the actual costs of stadium construction -- like the estimated $500 million to $4 billion in public subsidies that went into new stadiums for the New York Yankees and Mets, two supposedly private projects -- are even higher than typically reported.

In her book “Public/Private Partnerships for Major League Sports Facilities,” Long calculates that the average public subsidy for the 121 sports facilitiies in use in 2010 is actually $89 million higher than the $170 million figure commonly reported by the sports industry and the media.  How so? Think land giveaways. Infrastructure freebies. Tax breaks. Government subsidies enough to make an ethanol-producing Iowa corn farmer feel, well, hosed. The Colts don’t pay rent. The Vikings’ new stadium reportedly will be property tax-free. In the late 1990s, the city of San Diego was buying unsold San Diego Chargers tickets as part of a sweetheart lease deal -- does your landlord make up the difference when you don’t hit your sales targets at work? -- while from 2002 to 2010, the state of Louisiana gave New Orleans Saints owner Tom Benson $186.5 million in straight cash, homey, just for keeping the team around.

“Rather than pay for a new stadium, it was, ‘let’s just give you cash every year,’” says Brian Frederick, executive director of the Washington-based fan advocacy group Sports Fans Coalition. “He took that, and took money to get the Superdome renovated, and then when Hurricane Katrina hit he got more renovations. Then he turns around and buys the [New Orleans] Hornets. Well, guess where he got the money?”

Then there’s Paul Brown Stadium, both the newish home of the Cincinnati Bengals and quite possibly the single greatest boondoggle in the history of public-stadium financing. Completed in 2000, the building was supposed to cost $280 million. The Bengals estimate that it cost $350 million. Hamilton County, which assumed more than $1 billion in debt to pay for the stadium, puts the price at $454 million. Long, on the other hand, estimated in the Wall Street Journal that the actual cost to the public was roughly $555 million, once parking garages and other expenses were factored in. Moreover, local residents are on the hook for Paul Brown Stadium’s security costs, as well as most current and future operating and capital improvement expenses -- including, and this is not a misprint, a potential future “holographic replay machine.” Perhaps unsurprisingly, a voter-approved stadium-subsidizing Hamilton County half-percent sales tax increase remains in effect, while once-promised additional public school funding and a property tax cut do not. Oh, and the Wall Street Journal also reported that Hamilton County’s annual stadium debt payment two years ago was $34.6 million -- nearly 17 percent of the county’s total budget, and a big reason local lawmakers had to slash spending on schools, police and a program that helped troubled adolescents.

Meanwhile, the Bengals collect parking revenue from the stadium.

Still, at least the county gets to enjoy the job-creating, local business-boosting gold mine of 10 NFL games a year, right? Wrong. Numerous studies have shown that the local economic impact of stadium construction is nil. Dennis Coates, an economics professor at the University of Maryland, Baltimore County, calculates that “the professional sports environment” -- that is, having stadiums and teams in a particular area --  may actually reduce local incomes. “Our model shows that average income is a little bit lower, about 40 dollars a year for a family of four,” Coates says. “Now, why might that be? There are a number of possible explanations. One of them -- and I think this is the most plausible -- is that a large amount of the money spent inside a stadium simply leaves the community. Think about the revenues generated. Fifty percent is player salaries. In most leagues, players don’t live where they play. So they take an enormous amount of money generated in the community and take it to south Florida or southern California and spend it. If that same money was spent on a movie, dinner, bowling, the theater, a locally owned bar, tips for bartenders and waitresses, all of that money predominantly stays within that community.”

Worse still, Coates notes that stadiums typically are paid for in regressive ways, via lotteries and sales taxes -- Minneapolis, for example, is set to boast the highest downtown sales taxes in the nation -- that disproportionately burden the poor, while the benefits of the stadium go mostly to relatively wealthy sports fans. Basically, it’s trickle-down economics in reverse. That, or an unwitting nod to the socioeconomic milieu of pretty much every Charles Dickens novel. “Lower income people spend virtually all of their income,” Coates says. “Higher income people save more. It’s clear that sales taxes are regressive. And we haven’t even talked about people who may not have interest in sports. Suppose I’m a big fan of the opera but hate football -- with a sales tax, you’re asking me to pay for a team that makes me upset. But that never gets factored in to these projects. It’s only the people who are going to be happy about having the team that we think about.”

Particularly galling are stadium-supporting hotel and rental car taxes, which literally attempt to pass the buck to visitors and non-residents who likely don’t root for the local pro team. Rental car tax increases helped fund new NFL stadiums in Indianapolis, Phoenix, Houston and Arlington, Texas; Kansas City’s Sprint Center, which was built in the hope of attracting a pro team, was entirely funded by new hotel and car rental surcharges. Testifying before Congress last February, fan advocate Frederick highlighted the absurdity of this arrangement:

“If I were to go home this weekend to see the Kansas Jayhawks take on the Missouri Tigers, I’d rent an economy car in Kansas City for three days at a base rate of $11 per day,” he said. “That’s $33 for the car, but the taxes and fees alone are $42.84, which is an increase of 129 percent. I would wind up paying $75.84 instead of $33. That means 16 percent of my bill will go to fund the Sprint Center, even though I am not attending any games there. Nor is there an actual team that plays there!”

But wait. There’s more. Bigger handouts, written directly into the federal tax code. Steve Piascik, a registered financial adviser with the NFL Players’ Association, says that when leagues donate the fines to charity -- as the NFL, NBA and others do -- offending players can deduct the expense on their income tax returns. Did you enjoy Baltimore Ravens safety Ed Reed’s recent above-the-shoulder hit on Pittsburgh Steelers receiver Emmanuel Sanders, which resulted in $50,000 fine? Hope so. In a tiny way, you sprung for it. Meanwhile, the Internal Revenue Service allows team owners to treat players and their salaries as both regular expenses and depreciable assets -- the same as aging livestock, or office computers -- a legal quirk that makes team rosters tax deductible in two different ways, and effectively creates a profit-hiding tax shelter. Is this quirk a legal accident? Not quite. It was created by former baseball owner Bill Veeck. A man whose memoir is titled “The Hustler’s Handbook.” A man who wrote, “Look, we play the Star-Spangled Banner before every game -- you want us to pay income taxes, too?"

In order to help municipalities reduce their borrowing costs for things like roads, sewers and schools -- you know, things people kinda sorta need -- Congress exempts certain types of local and state industrial development bonds from federal income tax. Guess what else qualifies? Stadium construction. According to an extensive and infuriating Bloomberg report, tax exemptions on interest paid by municipal bonds that were issued for sports structures cost the U.S. Treasury $146 million a year -- about the annual costof the federally funded Supplemental Nutrition Program for Women, Infants and Children in the state of Pennsylvania -- while the $17 billion of tax-exempt stadium debt issued since 1986 will cost American taxpayers a total of $4 billion through 2047. As former North Dakota Senator Byron Dorgan said during a 1996 hearing on Capitol Hill, this means “North Dakotans are being asked to pay millions of dollars to build luxury sports facilities in other states that often are not needed, and simply serve to line the pockets of a few wealthy team owners and players … it looks to me like the only healthy public housing program in America today is the one that builds sports stadiums with luxury skyboxes with public funds to house professional sports teams with private ownership.”

So, yeah: In a small way, you’re also helping to pay for the Bengals’ future holodeck. Make it so!

Adding insult to financial injury, federal lawmakers once tried to close this loophole -- and being federal lawmakers, they instead made the problem worse. The Tax Reform Act of 1986 required municipal bonds to become taxable if more than 10 percent of the debt for a facility built mainly for non-government use (read: stadiums) was to be repaid with revenue from a private business. The idea? Cities that were using rent, game ticket surcharges and other sports-related fees to repay stadium bonds would stop gaming the tax code, because really, no municipality in its right and responsible mind would shift 90 percent of stadium debt onto the general public. The unintended outcome? Municipalities started doing just that.

Remember those rental car fees?

“What happened is that state and local governments started structuring [stadium] deals so that most of the debt service was paid out of general government revenues,” says Dennis Zimmerman, a retired Congressional Research Service economist who analyzed the act’s effects. “They stopped having user charges and ticket taxes, and had to find general taxes that could apply to everything.”

Sports Welfare doesn’t stop there. To wit: In the eyes of the IRS, the National Football League is considered a nonprofit outfit. Just like the United Way. Read that again. The NFL -- a league that makes roughly $9 billion in revenue per season and will collected a guaranteed $27 billion in television money over the next decade -- enjoys the same tax breaks as, say, your local chamber of commerce, because both are classified as 501(c)6 organizations. Under federal law, 501(c)6 organizations -- essentially, business leagues -- are defined as associations of persons having some common business interest, the purpose of which is to promote such common interest and not to engage in a regular business of a kind ordinarily carried on for profit. Does that sound like the NFL to you? Two years ago, a Vermont Law Student named Andrew Delaney penned a paper that described the NFL as functioning like a “glorified tax shelter,” explaining as follows:

"Through for-profit companies, the NFL sells licenses to use NFL intellectual property, broadcast games, etcetera, making a ton of money,” he writes. “That money is then distributed to the individual teams. The individual teams, in turn, pay their ‘dues and assessments’ [Editor’s note: an estimated $6 million annually per franchise] to the NFL. I don’t intend to mislead -- some taxes certainly get paid here. The teams are considered for-profit and pay regular taxes. The teams’ tax liability is significantly reduced, however, when they pay their tax-deductible ‘dues and assessments.’ [Italics added]. How much and what gets taxed is just not publicly available. And it should be if the NFL is going to enjoy tax-exempt status.”

Again, remember those rental car fees? Remember those hotel and restaurant taxes that paid for Lucas Oil Stadium? Turns out state and local governments typically exempt nonprofits from sales taxes -- which means that when the Super Bowl was held in Indianapolis last February, NFL employees didn’t have to ante up. Believe it or not, the Professional Golfer’s Association and the National Hockey League also enjoy the same nonprofit status. Major League Baseball -- a co-owner of Sports on Earth -- used to file as a nonprofit, but chose to become a for-profit limited liability corporation in 2007, in part because the IRS adopted new transparency rules for nonprofit salaries exceeding $150,000, something the NFL lobbied against.Maybe that’s why Sen. Tom Coburn (R-Okla.) included both the NFL and NHL in the 2012 edition of his annual government “Wastebook,” estimating that the two leagues’ 501(c)6 classifications cost taxpayers a combined $91 million. Maybe NFL commissioner Roger Goodell’s $9.9 million annual salary -- part of a whopping $53.6 million the league paid eight of its top executives in 2009, the better to not, you know, turn a profit -- is why Delaney writes that if “the NFL isn’t violating the letter of nonprofit status, it’s certainly violating the spirit.”

According to Sen. Coburn, NFL executive vice president of media Steve Bornstein earned $12.2 million in 2010, while former commissioner Paul Tagliabue made $8.5 million. Goodell’s salary reportedly will reach $20 million in 2019. In comparison, the next highest salary of a traditional nonprofit CEO in 2008was $3.4 million.

“The reason the NFL gets away with this is that it was written into the language of the AFL-NFL merger, which had to be approved by Congress,” Frederick says. “They are supposed to only be promoting the business of the sport of football, and not particular brands within football. Which is absurd. The NFL clearly promotes its shield above other professional leagues which have come and gone.”

Because they (theoretically) serve a charitable educational mission with their respective schools, college athletic departments also are considered nonprofits -- a major reason the NCAA clings to the outdated, immoral concept of amateurism, and that big-time football coaches such as Texas’s Mack Brown earn $5 million-plus per season. (When you don’t pay the workforce because you’re technically not a business, all that television money has to go somewhere.) Postseason bowl games enjoy the same hands-off treatment from the IRS, with predictable results: Sugar Bowl CEO Paul Hoolahan earns $645,000 in total yearly compensation; Outback Bowl -- Outback Bowl! -- CEO Jim McVay eared $808,000 in 2009former Fiesta Bowl CEO John Junker collected a $592,000 annual salary before the fallout from a scandal involving a $33,188 self-celebrating birthday party, a $95,000 round of golf with Jack Nicklaus and $1,200 strip club visits on the company’s (tax-deductible!) tab led to his firing.

In the book “Death to the BCS,” authors Dan Wetzel, Josh Peter and Jeff Passan report that the Sugar Bowl in fiscal year 2007 earned $34.1 million in revenue -- $3 million of that, by the way, via an unnecessary cash handout from the state of Louisiana -- while spending only $22.5 million, clearing a cool, tax-free $11.6 million and finishing the year with $37 million in assets. Not bad for a “nonprofit,” particularly one that Wetzel and company write “gave nothing” back that year -- “not a buck to the Hurricane Katrina reconstruction effort. Not a dime to a New Orleans afterschool program. Not a penny to Habitat for Humanity.”

If President Obama is serious about closing tax loopholes, Sports Welfare would be a good place to start. If Congressional Republicans truly believe that government spending needs to be reined in, they should move to slash earmark giveaways like $35,000 for the Alabama Sports Hall of Fame and $73,000 to build a miniature red-brick replica of Oriole Park at Camden Yards. Or curtail the millions in public funds given to bowl games. Or stop allowing college sports boosters and alumni an 80 percent tax write-off on athletic department “donations” that grant fans the privilege of buying season tickets. Or cut the $80 million a year the Pentagon spends on sponsoring NASCAR, cage fighting and bass fishing events. Or revisit a 1997 Congressional decision that reversed an IRS ruling and allowed corporations to keep taking tax deductions for naming rights on college athletic facilities. Indeed, if Washington’s powers-that-be want to get the nation’s financial house in order, it wouldn’t hurt to stop shoveling money at every cash-flush sports-related special interest that comes calling on Capitol Hill -- like, for instance, the 2002 Salt Lake City Olympics, partially made possible thanks to a staggering $1.5 billion in federal handouts.

“This is a bipartisan cause,” Frederick says. “One of my most interesting meetings in Washington was the morning that I, a former senior editor at Media Matters, had breakfast with Grover Norquist.”

For the non-Beltway savvy: Media Matters is a liberal-leaning organization devoted to “monitoring and correcting conservative misinformation,” largely by hectoring Fox News. Norquist, on the other hand, is a conservative fixture, Ronald Reagan acolyte and perhaps the most influential anti-tax, small-government lobbyist in modern political history.

“So, Norquist told me that he liked what Sports Fans Coalition was doing, that we were on the right track in terms of fighting the public subsidization of sports stadiums,” said Frederick. “Our organization was founded by somebody that worked in the Clinton White House [David Goodfriend] and somebody that worked in the Bush White House [Brad Blakeman]. We agree that the sports system as it exists is only benefiting a privileged few. Clearly the right and the left can come together on this.”

One would think so. By ending Sports Welfare, Democrats could make plutocratic team owners and other wealthy sports interests pay a fairer share, while Republicans could cut government expenditures, simplify the tax code and increase revenues without explicitly raising taxes. An obvious win-win, except for the fact that … our duly elected officials don’t seem to care.

That $80 million in annual Pentagon sports spending? It includes more than $20 million a year from the National Guard to sponsor Dale Earnhardt Jr.’s racing team. On the House floor, Rep. Betty McCollum (D-Minn.) lamented that “it is irresponsible and outrageous to think this Congress would be willing to borrow money from China to pay one race car driver and his team $26 million for delivering zero recruits!” Yet despite an ongoing budget crunch, a bipartisan amendment to slash the Pentagon’s sponsorship program by $72 million failed in a 216-202 vote. Not even close. Senator Marco Rubio (R-Fla.) has criticized the federal tax code as a “complicated and burdensome mess.” Earlier this year, however, he proposed giving America’s Olympic athletes a special exemption on the taxes they have to pay on the $25,000 honorarium they receive for winning gold medals.  In Miami, a local politician who supported public financing for the Marlins’ new stadium says that taxpayers fronting an estimated $220 million for renovations to Sun Life Stadium is not a matter of “if,” but rather “when” and “how” -- never mind that Miami-Dade County residents will be paying off Marlins Park until 2049. The reason? The NFL insists that a stadium that already underwent $300 million in sprucing up over the last decade needs additional work in order to host future Super Bowls, and since the Miami Dolphins remain $230 million in debt from previous fix-ups, well, hey, someone has to pick up the tab. In Virginia, governor Bob McDonnell recently went behind the back of his own legislature to throw $6.5 million of state and local funds at the Washington Redskins, the better to persuade the team to hold training camp in Richmond. (This, for a fan-milking, profit-uber-alles franchise that once charged fans to attend training camp, which is like charging fans PSL licenses to watch a stadium get built.)

Perhaps none of this is shocking: after all, the man in charge of the Salt Lake City Games was a moocher-bashing, personal responsibility-endorsing bootstrapper named Mitt Romney.

“It’s kind of a hopeless battle,” says Zimmerman, the retired Congressional researcher. “Politicians all talk about government spending being something that should provide real public services. But they vote all the time to spend money or not collect taxes for things that are not.

“Personally, I could care less if people in Alabama want to pay for what amounts to their own professional football team. Let them, if they want, through state taxes. Why should we as federal taxpayers pay for it? But we are.”

Back to the Redskins. A recent report claimed that Washington city officials would support moving the Federal Bureau of Investigation’s headquarters from downtown D.C. to Prince George’s County in Maryland if the county reciprocates by allowing the football team to break its current lease at FedEx Field in Landover and move back to the District. Of course, doing so also would require replacing decrepit RFK Stadium with something shiny, new and expensive, a potential Sports Welfare handout to dwarf McDonnell’s shameless giveaway. And speaking of shameless, Redskins co-owner and FedEx founder Fred Smith last week gave a lecture to the Economic Club of Washington in which he, a) called for lower corporate tax rates, and (b) was adamant that government entitlement spending is “not sustainable.” Apparently, Smith owns a mirror. Hopefully one he paid for himself.