Opinion | Shiny new sports stadiums a loser for Michigan taxpayers

Chris Douglas is chair of the economics department at the University of Michigan-Flint.

HBO’s Real Sports With Bryant Gumbel recently aired a segment that took a critical look at the unfulfilled promises of “District Detroit,” which is the area surrounding the new Little Caesars Arena. The Ilitch family, who owns the construction company that built the new arena, promised it would lead to the construction of five new neighborhoods, comprised of residential buildings and a hotel, in the 50 blocks surrounding it. As the HBO segment points out, none of this new development has taken place.

For someone who has studied these types of stadium deals for years, it is not surprising that these promises have been broken. The overwhelming consensus amongst economists is that subsidized sports stadiums and arenas provide no meaningful, long-lasting economic benefit. In a Feb. 6, 2017 article for the Mackinac Center, I called taxpayer-subsidized sports arenas just an “expensive psychological boost.”

And this boost is indeed expensive. Taxpayers paid $324 million out of the $863 million cost to construct Little Caesars Arena. These are funds that, in-part, would have otherwise gone to Detroit Public Schools. As illustrated in the Real Sports segment, these schools are in a state of disrepair, with dilapidated buildings, leaking roofs, mold and other hazards. The diversion of these funds to construct the arena has made it even more difficult for school officials to finance the necessary repairs.

The reason why taxpayer-subsidized stadiums and arenas, such as Little Caesars Arena, do not lead to economic development is straightforward. These facilities are closed far more often than they are open. NHL and NBA seasons both have 41 home games and there are approximately 30 other special events at Little Caesars. This means that the arena is closed for 70 percent of the year. A facility that is open for just 110 days a year is unable to produce a meaningful impact on the overall economic development of a region. This is true even for long-established arenas and stadiums: the neighborhoods surrounding Comerica Park and Ford Field on nongame days is pretty quiet.

The economic impact for the days that Little Caesars is open is limited further by the struggles of the Pistons and Red Wings. Detroit Pistons’ attendance ranks near the bottom of the league. The Pistons attendance struggles led the team to partner with Art Van Furniture to purchase black seat covers for the red seats in the arena, as the empty red seats were a sore spot visible during the television broadcasts. Obviously, if fans are not coming to games, the economic impact from these home games is further limited. Additionally, attendance at sporting events is in a nationwide decline.

Other factors limit the economic impact from stadiums and arenas. They do create some new jobs, but these tend to be part-time, low-wage food service jobs. Meanwhile, the majority of the revenue generated from ticket sales and selling advertising flows to the players and owners.

Another limiting factor is that these new arenas don’t necessarily encourage people to spend more on live entertainment than they otherwise would. Going to see a game may just divert spending from some other local entertainment option — which is a zero-sum game from the perspective of the local economy. Stadiums can only boost local economic activity if they spur more spending from current consumers of live entertainment or draw in new consumers. The empirical evidence suggests that this typically does not occur, and given the attendance woes of the Pistons and Red Wings, seems even more unlikely in this case.

Despite these failures, the city of Detroit decided that the Ilitch organization met its development goals for District Detroit and awarded it an additional $74 million in taxpayer dollars. These goals were met by constructing two parking garages, an office building for Google and a headquarters for Little Caesars — also owned by the Ilitch family.

Gov. Gretchen Whitmer wants a 45-cent per gallon increase in the state gas tax to fix Michigan’s roads. As the $400 million in taxpayer dollars spent on Little Caesars Arena demonstrates, there may be room in the state budget to divert the hundreds of millions spent on failed economic development projects to the roads. Michigan’s economy will benefit more from better roads than from subsidized shiny new stadiums.

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Comments

Don
Wed, 06/19/2019 - 8:48am

Why is it that Detroit is one of the only cities that build NEW Stadiums for loosing teams??

Todd
Wed, 06/19/2019 - 6:30pm

Why ask a question that is factually incorrect?

Bob
Wed, 06/19/2019 - 8:53am

Government subsidies in general are questionable whether it be a manufacturing plant, a hotel, or other entity such as a sports arena. I have read other articles similar to this one and they come to similar conclusions as Mr. Douglas has in this article.
The powers that be should be much tighter on both their upfront agreements and in the amounts of money, if any, that are allocated on these types of projects.
Progress is good. But these kinds of subsidies have a poor track record. And at the least they should justify a return on investment (ROI) which is what the business people who receive these subsidies look for in their own business. The government should expect the same.

Rick
Wed, 06/19/2019 - 8:56am

Just like the old 'tax cuts pay for themselves' lie....
They don't, never have, never will.
The corporate GOP con game.

Matt
Wed, 06/19/2019 - 12:50pm

Yep, the GOP really has its way in Detroit doesn't it?

John Q. Public
Wed, 06/19/2019 - 8:27pm

It did in this case. The bill to give the Ilitch family the tax incentives was introduced in 2012 lame duck by Republican John Walsh, passed by Republican majorities in both houses, and signed by Republican governor Rick Snyder.

Matt
Thu, 06/20/2019 - 7:01pm

And strangely enough by all indications the Illitch family supports Democrats. Go figure.

Todd
Wed, 06/19/2019 - 6:31pm

Uh, you do realize that Detroit is a democrat cesspool, right?

Cliff Yankovich
Wed, 06/19/2019 - 9:27am

I am consistently amazed at people who worry about tax dollars helping folks on welfare, when they mutely watch MILLIONS of tax dollars handed to billionaires and billion dollar corporations so that they can make even more millions. Corporate welfare is strangling Michigan. The Illitch family could have, and should have, written a check for their arena - instead we the people built it so that they can sell their $7 pizzas for $15 to the captive audiences.

Cindy Miller
Wed, 06/19/2019 - 10:19pm

I agree....except that I DO write protesting these scams. Republican response? Crickets...….

Because our state is so gerrymandered we can't seem to ditch these self-serving thieves who really work for their pals at the country club.

WRTolkas
Sun, 06/23/2019 - 8:29am

I am a Republican and I fully agree with you, Miss Cindy. The only document the government should be sending is a tax bill.

Andrew
Wed, 06/19/2019 - 9:37am

This piece is unfortunately generic. The main problem with the funding was that Olympia had convinced everyone they were paying for thousands of residential units across a wide area, and all they've delivered are a stadium and shoddy parking lots. It worse than just a standard stadium deal, as it's not just a matter of projected ancillary development not occurring. The entire pitch was a scam. Also Ilitch owns most of the area around Comerica. Its lack of anything but parking is precisely the same issue, which is that they're effectively just slumlords and property speculators, not developers.

Susan
Wed, 06/19/2019 - 11:11am

Ouch! A lot of truth in the article. So what kinds of feasibility studies were conducted BEFORE the arena was built and why wasn't this shared?

Mike
Wed, 06/19/2019 - 11:48am

Pressure needs to be placed on the Illitch family to follow through on their responsibilities. It is not too late. There just needs to be the political courage to act on the part of Mayor Dugan and his staff.

Arjay
Wed, 06/19/2019 - 1:08pm

It will be a cold day in you know where before Mayor Mike attack’s any developer moving a shovel in the city. Without developers, how could the mayor support his friends and family plan? The real problem is that politicians who have the good of the residents at heart are all but impossible to find, no matter what the party.

Thor of the North
Wed, 06/19/2019 - 12:04pm

And then everyone believed it.....LOL

Matt
Wed, 06/19/2019 - 1:01pm

The fact is we have very little clue how to turn around anything whether cities, neighborhoods, mass transit or schools. Things can and do turn around, but usually by nothing to do with the governmental actions. Politicians are always happy to take credit. But the many failures are quickly swept under the rug and never seem to discourage the next attempt..

Dave
Wed, 06/19/2019 - 2:27pm

In the US, yes. But there are plenty of examples from Europe. The big difference is that the US does not invest in its public infrastructure, particularly schools and transit. Decades of cuts forced by reduced tax burden (mostly on wealthy) has cost this country dearly. Detroit has many problems, but unfortunately the city, state and federal government will not deliver the scale of resources needed.

Rick
Fri, 06/21/2019 - 10:07am

Thank you. Absolutely yes. But with the GOP driving things nothing will change. 'Privatize profits, Socialize Costs'.

Kevin
Wed, 06/19/2019 - 1:36pm

This is a Republican AND Democrat mistake. I've never understood why municipalities all over the US subsidize sports facilities. The owners of the teams are the beneficiaries ; when have you ever heard of a major sports team going bankrupt? If sports teams want public money for their venues, then the municipalities should require partial ownership of the teams to share the benefit. If I were the CEO of a retailer or financial institution, I'd go to the municipality and ask that they construct a new store or bank branch for their business; after all, they pay taxes and employ people too.

Government needs to establish a watchdog agency that examines spending programs of all kinds and "breaks" to see if they deliver on their promises and if they don't, shut them down. Nestle is also a huge beneficiary of taxpayers. For pumping vast quantities of fresh water that belongs to all the citizens, they pay a princely annual fee of $200. What a deal! This is a business deal that makes NAFTA look like it was crafted by geniuses. Whitmer should revise that deal and charge a per gallon fee and she'd have money for roads.

***
Wed, 06/19/2019 - 5:41pm

Politicians love to hobnob with rich developers, makes them feel important, feeds their ego and these kinds of deals get worked out under those conditions.

Excalibur
Fri, 06/21/2019 - 5:42pm

Yeah, like the Schostak family that received $20 million in grants from Michigan government in a middle of the night lame duck session. The money is supposed to go for water and sewer lines in a development the Schostacks are investing in. It's just coincidence that Bobby Schostak was Chairman of the Republican Party at one time. Don't you just love these free-market capitalists. Like someone said earlier, socialize the cost, privatize the profit.

Andrew
Wed, 06/19/2019 - 5:18pm

Some facts about the LCA financing.
The Detroit DDA was utilized to finance the LCA. The initial "deal" occurred under the Emergency Manager and was obscured by his uber al authority and in the city's subsequent bankruptcy. The second trip to the bond market by the DDA, in 2018, after the city emerged from bankruptcy and the EM resigned, was specifically for more money to "reimburse" the two billionaire professional sports team owners to "accommodate" them for some changes in the LCA and for offices and practice facilities for the Pistons. The DDA purported to capture the DPS 18 mills tax levies approved by the voters in 2012 to fund repayment of the newest bond refinancing (along with other tax levy recaptures).
The DPS Board was asked to put to a vote of the Detroit electorate, the newest portion of the taxes that were to be taken from the schools operating millage (which had been voter approved in 2012) revenue to repay the DDA's bonds for reimbursing the billionaires. The school board refused to allow the voters' approval or disapproval to go on a ballot.
The Revised Michigan School Code, MCL § 380.1216, states: "... money raised by tax shall not be used for a purpose other than that for which it was raised without the consent of a majority of the school electors of the district voting on the question at a regular or special school election."
And the Michigan Supreme Court has said in its 2007 case, South Haven v Van Buren Co. Bd. Commissioners, 478 Mich. 518 that “funds
derived from levies must be used for the purposes stated in the ballot.”
To date no judge has seen any problem with this - state law be dammed - the right to vote be dammed. The city clerk will not even let a petition to put it on a ballot go on a ballot - a petition that got 7 thousand signatures in two days.

John Q. Public
Wed, 06/19/2019 - 8:33pm

The school operating funds that would have gone to DPS are paid to the district from the school aid fund, thus shrinking the amount available to all schools. In effect, YOUR school district, along with all the others in the state, helps pay the arena bonds. The LCA should have been named "School Aid Fund Arena."

Tom
Sun, 06/23/2019 - 11:52am

They only way you can build these ballparks and arenas in urban areas is through government authorities. You need them to help acquire the property. They are all built with some varying of public assistance because they are deemed beneficial to the urban areas. Not sure where the author gets his information, but the LCA has events almost 200 times a year and has drawn over 4 million people downtown to eat in the restaurants, drink in the bars and stay in the hotels. And the public funds do not come from the Detroit Schools. Detroit is the only city with all four major sports venues located downtown and they have all contributed to the rebirth of downtown Detroit. It's not the magic solution that will transform Downtown by it's self, but it's part of the draw that is bringing people back to live, work and play in Detroit.