August 4, 2017
RALEIGH — Bids to bring major-league soccer to Charlotte or Raleigh offer a major contrast in the way taxpayers would be forced to help foot the bill. A new John Locke Foundation Spotlight report compares the proposals involving North Carolina’s two largest cities.
“Large subsidies aren’t necessary to attract major-league sports, and stadiums don’t have to be built using taxpayers’ scarce dollars,” said report author Julie Tisdale, JLF City and County Policy Analyst. “A city and its taxpayers seeking a sports franchise will be served better by leaving the building of stadiums to the private businesses that will benefit most from them.”
“If taxpayers are going to play a role, it makes sense to minimize that role and to maximize the return on investment,” Tisdale added.
Tisdale’s report arrives after Major League Soccer officials visited both Charlotte and Raleigh. They are two of 12 cities with ownership groups seeking new MLS franchises. MLS has announced plans to add two teams in 2020 and two more in 2022.
Each bid required plans for a soccer-specific stadium capable of seating roughly 20,000 people, Tisdale said. “This has turned out to be the big sticking point for MLS bids,” she said. “This is also the category in which Charlotte and Raleigh offer such contrasting approaches.”
In Charlotte, prospective owners propose a $175 million stadium. Their initial plan called for city taxpayers and Mecklenburg County taxpayers each to pay $43.75 million, while Mecklenburg County also would loan another $75 million to the team’s private owners. Those owners would have paid $12.5 million up front and repaid the $75 million loan over 25 years.
Mecklenburg County would have owned the stadium and paid for required maintenance. The private owners would have controlled revenue and managed the stadium’s calendar, under the original proposal.
“Mecklenburg County commissioners initially voted to support the plan, while the Charlotte City Council refused to consider it,” Tisdale said. “The city then suggested it might consider contributing some of the cost, while the county rescinded its original offer. The ownership group has not withdrawn its bid, but stadium financing has become an increasingly difficult issue.”
The Raleigh bid calls for a $150 million stadium. Private owners would pay for construction costs. Taxpayer involvement would take a different form. The targeted stadium site sits on 13 acres of state-owned property. Rather than buy the site and return it to Wake County property tax rolls, the private owners have expressed a desire to lease the land from the state while retaining ownership of the stadium. State officials have placed an initial $91 million value on the targeted land.
“There are significant unanswered questions about what exactly the Raleigh ownership group is asking from the state and its taxpayers,” Tisdale said.
These bids are not unusual, Tisdale said. “For decades, it has been common for teams and owner groups connected to various sports to ask cities for large sums of money to build the stadiums in which they will play,” she said. “Taxpayers end up footing the bill through increased property taxes and other taxes.”
Much of Tisdale’s report explains why this common approach should raise red flags for taxpayers. “Advocates of new major-league sports teams tout benefits such as increased tax revenue, business growth, and new jobs,” she said. “They also contend that the city will become more attractive to top talent, including the kinds of smart, young people who can fill jobs in big companies looking to relocate. Supporters believe that building a stadium will more than pay for itself.”
Evidence tells a different story. A 2015 study based on decades of economic data for cities with major-league baseball, basketball, football, hockey, and soccer teams produced “striking” findings, Tisdale said.
“The presence of a professional sports team does indeed impact the economy, but, contrary to popular belief, the impact is usually negative,” she said. “It appears that cities with professional teams saw their per-capita gross domestic product drop. In other words, people became poorer.”
Other studies also have disputed the notion of major economic benefits tied to major-league sports teams, Tisdale said. One reason is an economic concept called the “substitution effect.”
“People have a limited number of hours and dollars, and they spend some percentage of that time and money on leisure activities,” she said. “Local fans who spend money watching a new MLS team in Charlotte or Raleigh are not spending that money watching the Charlotte Hornets, Carolina Hurricanes, or a minor-league baseball team. They might also be substituting the MLS game for going bowling, watching a movie, or attending a concert.”
An unintended consequence could be to take money away from smaller local competitors, Tisdale said. “A new stadium doesn’t magically increase local residents’ entertainment budgets,” she said. “In fact, it may do just the opposite if that stadium is funded through increased taxes.”
Government ownership of a stadium creates its own problems, Tisdale said. “If Mecklenburg County owns the proposed MLS stadium, or North Carolina the land upon which a Raleigh stadium sits, then the soccer team’s owners lose little by moving the team,” she said. “If another city comes to them with the offer of a shiny new stadium 15 or 20 years from now, they have every reason to consider accepting the offer and leaving the state. Any counteroffers to entice them to stay would likely include more favorable terms, more tax breaks, or stadium improvements. Once again, taxpayers would pay the bill.”
A stadium owned and financed privately offers a clear contrast, Tisdale said. “In that case, the team owns the stadium, so leaving involves finding a buyer or a tenant, or being willing to eat the cost of an unused facility,” she said. “It’s easier just to stay put, in the same way that people who rent their homes can move more frequently and easily than people who own their homes.”
The proposed Raleigh stadium appears to fall in between the distinct public and private options, Tisdale said. “A completely privately owned and operated stadium is ideal,” she said. “It’s difficult at this point to judge how close the Raleigh proposal comes to meeting that ideal.”
A recent Forbes report suggests the average MLS team is worth more than $185 million, an increase of 18 percent in one year. “The primary beneficiaries of that growth are team owners, and it is right that those owners should build the facilities necessary for their businesses to thrive,” Tisdale said. “There seems to be a move in that direction, at least for MLS. Of the 12 current bids for new teams, five include plans for privately funded stadiums.”
“The fact that nearly half of the owner groups were confident that they could build stadiums and develop successful business plans that don’t rely on taxpayer funding should encourage cities and counties across North Carolina and the rest of the country.”
Julie Tisdale’s Spotlight report, “Public Financing of MLS Stadiums Warrants a Red Card,” is available at the JLF website. For more information, please contact Tisdale at (919) 828-3876 or [email protected]. To arrange an interview, contact Mitch Kokai at (919) 306-8736 or [email protected].