The City of St. Louis dodged a major bullet in recent months as Rams Owner Stan Kroenke opted to move his team to Los Angeles. City leaders were perplexed as to why the billionaire declined when St. Louis tried to give away the Arch. They also promised him power over local tax rates, giving the man the power to charge local taxpayers whatever he liked to increase his net worth. The city also suggested laying off half of its police force if the extra money involved would sway the benevolent Rams owner. Obviously, I am joking a little. However, the truth is not as far from what I wrote as you would think.
A Broke City Was Going to Give $150 Million To a Billionaire
The initial plan from St. Louis leaders was for the city to give $150 million to billionaire Stan Kroenke as a gift to build a new state-of-the-art stadium on the Mississippi River. The city barely has annual revenue of three times this amount, which is supposed to cover a massive amount of services and salaries. The state and county were going to chip in as well for a total of $355 million in public money. Meanwhile, the stadium in LA is getting built without a dollar of public funds. St. Louis felt like it had to give away hundreds of millions of dollars to make the NFL ambivalent between the two locations.
St. Louis already has a 1% earnings tax, and a declining tax base and population. The city is challenged because it legally cannot expand to incorporate much of the surrounding suburbs where most of the wealthy residents live. The metro area around the city is reasonably strong, but since the stadium deal would still rely heavily on the city itself, the large financial burden on an economically strapped area would have forced tax increases and service cuts. The citizens of St. Louis would have been faced with fewer police officers on the streets, outdated infrastructure, fewer firefighters, and even likely cuts in services to the homeless.
The $355 million giveaway of public funds for a private businessman’s exclusive use is only part of the story. St. Louis was going to turn over income from stadium naming rights to the Rams as well, in a $158 million windfall for the team. All game day taxes, which had been going to support bond payments on the prior multi-million dollar stadium, would have been diverted to the team.
Academic Evidence is Clear That Public Stadium Financing is a Rotten Deal For Taxpayers
There is widespread consensus among the academic community that stadiums do not provide positive economic benefits compared to their costs. To cover an expensive NFL stadium, you must raise taxes and thus hurt consumers. The dollars that get spent on going to games are diverted from other entertainment activities. Also, the jobs that are created are typically of the low wage, low skill variety.
Nowhere is this more evident than the recent deal struck by the Cincinnati Bengals. Hamilton County, where the Bengals are located, decided to cover most of the public contribution to the stadium on its own, rather than combine efforts with regional and state governments. In 2010, the cost of the stadium was $34.6 million to the county, over 16% of its budget. Hamilton County gave away all parking revenue to the Bengals and promised to cover costs of game day security. It also covers general operating costs, upkeep, and cost overruns. Most experts consider that NFL stadium deal to be the worst for taxpayers in the country.
St. Louis’s proposal would have been close. Cincinnati promised to pay for any technological advance needed to keep the team’s stadium in the top echelon of the league. That promise includes taxpayers footing the bill for holographic replay machines, if they are ever invented. Hopefully St. Louis would have at least had the sense to leave that out of the final contract, but we will never know.
The NFL Pretended to Pay Attention to the St. Louis Proposal To Profit in the Future
It is clear when looking at Kroenke’s plans for moving his team to LA that St. Louis never had a chance. Why then did the owners and Roger Goodell, the NFL Commissioner, pretend to respectfully consider the city’s offer? The answer is clear; because they want to win billions in public funds in the future.
St. Louis did everything by the book when they presented their new stadium proposal to keep the Rams. They followed the guidelines presented by the NFL to the letter, and made a compelling case to keep the team in its home market. The owner of the Texans even said, “St. Louis, they have come up with a proposal that is getting pretty close, in my opinion, to being an attractive proposal, and if they do come up with an attractive proposal, then in my view, my personal opinion, I don’t think the Rams will receive the approval to relocate.” All of a sudden, right before the owners’ meeting, the Commissioner comes out and badmouths the proposal and tries to downplay the ridiculously pro-NFL offer that St. Louis put on the table.
While local leaders are playing politics and making emotional decisions, the NFL is playing long term chess against an inferior opponent. The league needed to show that it would consider serious proposals to build expensive new stadiums with public funds, even if they never opened the St. Louis proposal to read the title page. The reason is that stadium proposals are very expensive to create, especially in the hands of public officials. St. Louis paid a team of architects, consultants, builders, and others a total of $16 million for detailed plans on this stadium that will never be built.
If the NFL had completely ignored their good faith proposal, any city in the future with a greater than 50% chance of losing its team would be dissuaded from paying for a study. These proposals benefit NFL owners tremendously because the more detailed the competing plans, the more they can play them off one another in negotiation. If you have a credible alternative in business, you always have more leverage. So the NFL wants other cities around the country (Buffalo, Jacksonville, Nashville, San Diego, Oakland, Cleveland, etc.) to know that they will always be receptive to offers from elected officials for stadium financing.
NFL Owners Planned This “Stadium Crisis” Perfectly By Leaving Out Jacksonville
Every NFL fan knows that the Jacksonville Jaguars struggle to bring in fans on gameday. The franchise has been a constant victim of speculation that it is moving to London. The team even scheduled four games over four seasons in London and extended the agreement through 2020. If there is a “Most Likely To Move To London” candidate, the Jaguars lead the list. Why then have we heard almost nothing about how Jacksonville’s stadium is the pits and how they should move to a better location?
The answer is clearly that the owners want to manage the number of teams trying to relocate at once, probably to maximize leverage. If there were four teams all threatening to move, the host cities would know that not all the teams could feasibly do it. That would then give a ton of leverage to those cities, which would result in lower levels of public funding for new stadiums. Remember that Oakland and San Diego were floated as options for London this past season? That’s not convincing at all if the Jaguars are in the conversation.
Obviously, the Chargers are in a tough spot. The San Diego market is great for football, and they are surely profitable. Their owner just wants a new stadium and doesn’t want to pay for it. He wants to threaten to move to LA to get a sweetheart deal where he’s at, or he will be playing second fiddle to the Rams as the tenant of another owner, Stan Kroenke. He really does not want that, otherwise the Chargers would already be in LA now. Oakland is really in a bad place, as they play in a baseball stadium, have talked a big game about moving to Las Vegas, but have shown no practical next steps. The NFL is a scheming organization that desires to rob taxpayers of as much money as possible. These three teams threats of relocation were planned better than a well rehearsed orchestral performance.
St. Louis Tried to Give Away the Arch, But It Was Never Going to Help
I joked earlier that St. Louis tried to give away the Arch. Namely, that the city was willing to give away its most valuable assets just to keep a subpar football team. The reality is that NFL owners will always do what is best for them. As Kroenke showed, owners are much more motivated by profit potential rather than how attractive the stadium financing is. He left St. Louis not because it was a bad market, but that LA is so much better. The next owner will leave for London or Las Vegas because the economics excluding the stadium make sense. He will not remain because of a few hundred million in public funds.
When St. Louis offered to mortgage its future to convince a billionaire to keep his business in the city, it did so unnecessarily. Kroenke had to pay $500 million as a relocation fee to move the team. The potential profits he had waiting in LA dwarfed any money St. Louis taxpayers could throw at him. Whenever you see a stadium deal of any kind where the public is putting funding behind it, fight back. If you are lucky, your team will be above average and there might be civic pride or psychological benefits. What’s certain is that your taxes will go up, or at least not go down. Your services will get cut, and the owner will get richer at your expense. Meanwhile, St. Louis still owes $100 million on the old stadium the Rams left, has lost the gameday tax revenue, and will be paying interest on the old bonds for the newly abandoned stadium until 2021. At least city leaders are coming up with great ideas like hosting more conventions in their giant empty property.
What do you think about stadium deals? Are they ever worth it? Have you been in a community where one has succeeded? Do you feel like the civic pride from having a professional sports team is worth the cost? Comment below.
You made some interesting points, and I think you’re right. The money will ultimately flow to the NFL and the owners – many cities are simply willing to pay up because there is a lot of social capital that surrounds having a football team in your city, and the perception that it is going to bring in more money and commerce. I live here in STL and the attitude around the whole Kroenke move really riled up the residents around here. Like you said, he made decisions based on his own opportunity costs, at least financially. He didn’t win any friends from here in STL though.