I just got a political ad in the mail. It showed off the storied soccer tradition of the great city of St. Louis. It told me that we needed to aspire to be more, and that we could be the city of the future if we only went to the polls this next Tuesday to say yes that we want to be a progressive city with world class professional sports. It all sounds great, except when you realize that a group of multimillionaires are trying to bilk taxpayers out of tens of millions of dollars for their own personal gain. This is true of public stadiums in general. Here’s why the MLS stadium proposal is a rotten deal for St. Louis, and why I’m making sure I go to the polls Tuesday to oppose it.
How Stadium Subsidies Get Sold
Owners of sports teams have the same goal as any business owner, which is to maximize the value of their investment. Unlike restaurants, big box stores, bars, medical offices, and other businesses, these sports owners use political lobbying and influence to get huge amounts of public money for their own private use.
So how can a sports owner get millions of public dollars? Convince the public that somehow they aren’t losing anything. The owners will say that by allowing them to keep their own sales tax money and use it on the stadium that they’ll just be generating free economic activity for the area. That’s wrong for a couple reasons. First, entertainment dollars spent at stadiums are typically diverted from other entertainment spending in the area. That’s not a net positive. Furthermore, the sales taxes from these other entertainment choices would actually generate money a city would get to keep.
Sports owners frequently try to capture taxes from ticket sales, concessions, and other tax revenue. They find the loudest and politically active unions in the area and promise them huge paydays. Outside of temporary construction jobs, most of the jobs a stadium generates are of the $7-$10 an hour nature, and even then that’s only for a part of the year when the season is on.
The Specifics of the St. Louis Proposal
For those of you who don’t know about the area, St. Louis city is an artificially small area of about 300,000 people in a metro with 2.8 million people. The MLS stadium supporters want the city to pay $60 million towards the effort to bring a MLS team to the city.
In other words, the poorer, disproportionately minority city residents are being asked to pay tens of millions towards a cultural amenity that richer, whiter county residents will enjoy and not pay for. Despite the typical financial reasons why public stadium subsidies are bad ideas, this is icing on the cake.
The MLS Ownership Group is Trying to Trick Voters Who Suck at Math
Right now we’re being told that the St. Louis MLS stadium would generate $77 million in revenue for the city over 30 years. The group of investors advocating for the stadium want $60 million in public funds to come solely from the city of St. Louis.
So how would you analyze $77 million in tax revenue over 30 years? Clearly, $77 million over 30 years is not better than $60 million upfront. But how much better is the $60 million today?
The answer comes from doing a net present value calculation. That’s where you take the future cash flows and discount them back to the present so you can compare return on investment. If I use a 4% interest rate, which is similar to what St. Louis could expect for the interest cost for a municipal bond issuance, the $77 million in 2017 dollar terms amounts to about $23.7 million.
So for an investment of $60 million, the OPTIMISTIC projection is that we get back about a third of that. Wait, I thought we were getting back more money MLS? How did that happen? The answer of course is the MLS wants to rip off every city they possibly can, and when you’re dealing with unsophisticated public officials and city residents you throw around big numbers and vague phrases to make things sound good.
MLS Knows There Was a Big Pot of Public Money Rejected by the Rams
On the mailing I received advocating for the MLS stadium, they tried to create artificial scarcity. The MLS group warned us that ELEVEN other cities are seeking an MLS franchise right now but that St. Louis was at the top of the list if we acted.
It’s clear why they’re trying to pitch the tax hike they want this way. St. Louis was even more foolishly trying to give the Rams hundreds of millions of dollars in public funds before the team gave the city the middle finger. MLS is looking at that action and thinking, “we want some of that!”
The MLS is in the business of trying to expand the value of their owners’ franchises. MLS TV contracts would be worth more if there were more popular teams spread out around the country, which is why they’re trying to move from 22 teams to 28 teams as fast as possible.
However, increasing the number of teams needs to help the current owners too. So how are they doing this? By seeking ever higher franchise fees from the initial investors. That means MLS wants each new team to pay an absurd sum of money just for existing. That money will of course go back to MLS owners and enhance the value of their franchises. However, convincing actual private investors to pay a huge sum for nothing is a tough sell. So MLS is trying to get public money to help owners who want to own expansion teams more easily afford the franchise fee.
In the case of St. Louis, the fee is a record $150 million. Clearly, a group of private investors is not going to spend that without substantial public money.
MLS Tried to Get Missouri State Funding, but the State Said No
The new Republican governor of Missouri surprised everyone when he emphatically shut down the MLS request of $40 million in state tax credits for the new stadium. He called it “welfare for millionaires.” MLS then asked for a larger sum from the city, before scaling it back to “only $60 million.”
St. Louis Has the Nation’s Highest Homicide Rate and Segregated Public Schools, We Can’t Afford a MLS Stadium
Here’s the hard truth that people don’t want to talk about, particularly ultra wealthy investors that want a big government handout. St. Louis has an insanely high murder rate.
Chicago’s bloody 2016 turned in a murder rate of just under 30 per 100,000 residents. St. Louis by comparison had a murder rate double that, at 59.3 per 100,000.
I’ve volunteered at the city schools, and I thought segregation was supposed to be over already since Brown v. Board in the 1950s. The white county residents don’t want the mostly African American St. Louis city school children in their districts. White St. Louis county residents have done everything they possibly can to block consolidation of school districts with the city.
The result is a horribly underfunded school system where teachers tell me they don’t even have enough money to take kids in field trips within the city.
I read something recently that said St. Louis has half the recommended number of homicide detectives as over half of all murders in the city go unsolved. That’s unacceptable in a major American city. St. Louis is also among the handful of cities around the country that charge an income tax, another impediment to economic growth.
St. Louis’ credit rating just recently took a hit, and city officials are warning of further negative impacts to the credit rating if we continue to throw away money on vanity projects. After all, city officials just recently gave away over $64 million to the NHL Blues, and a city of 300,000 just doesn’t have much in the way of resources when it has to maintain infrastructure that used to serve close to 1,000,000 people.
So Here’s to Hoping the Soccer Stadium and Other “Welfare for Millionaires” Starts Losing
St. Louis actually has a lot to love. Cheap baseball, great BBQ, wonderful free public parks, including one of the only free zoos in the world. St. Louis doesn’t need a soccer stadium to be world class. If it invested the $60 million in public safety or the burgeoning startup community of which I’m a part of, the return on investment would undoubtedly be much higher.
The disgusting Raiders and Mark Davis just got a record $750 million from Nevada to relocate to Vegas. Other sports teams are asking for record subsidies from taxpayers too. I’m very hopeful that city residents of St. Louis will be progressive and be among the first to say no emphatically to a horrible proposal for the city.