Should public funding for pro sports stadiums be banned?

[Berkut]

This is a good example of why I am not much of an economic libertarian anymore.

The obvious libertarian answer is that you should let municipalities do as they wish - if people want to give huge piles of cash to sports teams, let them. Why should anyone interfere with that?

However, this is a *classic* case of a prisoners dilemma. We make decisions at some local level, but the market is NOT local. This gives the owners of sports teams a massive negotiating advantage on an emotional and political issue, which allows them to then divorce themselves of what would normally be considered perfectly standard business decisions. This then warps the economics of professional sports.

The net effect of all of this is something that if we all stepped back and looked at it holistically nobody would agree is a reasonable outcome. We end up having public funds paying exorbitant salaries to athletes, team owners making outsized profits because they don't actually have to bear one of the largest costs of running their business, and all of it being funded not by the people who actually want to watch or go to these events, but rather the taxpayers! That is not libertarian or free market economic theory at all!

This is no longer an economic decision. The question of whether the Braves should be in Atlanta or Cobb county is not being driven by business concerns, but rather by *political* concerns. At that point, this is not longer a question of economics at all, but one of politics. And if the owners want to try to extract massive funds from the state by getting into politics, then I don't at all think we should be holding to some faux allegiance to "free market" ideology. Free markets don't involve politics and state funding of entertainment.

Libertarian theory would demand that if some team wants a $400 million stadium, then they should be able to support that cost by selling their product - not by blackmailing politicians into funding it for them.

The same holds true, IMO, for any public subsidizing of private business, btw. If we are going to allow that, then we've already thrown out the free market principles that would normally drive business location. And we should absolutely then make systemic rules and choices that cross local boundaries so that everyone can agree on standard to avoid these kinds of prisoners dilemmas that allow business to play one community against another to the detriment of all of them.

[Admiral Yi]

I don't see how blackmail comes into it. 

It seems like a perfect case of the free market in operation.  Franchise owners possess a finite resource, and auction off a part of it to those willing to pay for it.  If it's a bad deal for the city building a stadium, then that's on them.

[Valmy]

If it's a bad deal for the city building a stadium, then that's on them.

Yep. Boy are city governments stupid.

However if the Feds are being screwed by these deals in someway, I can see why they may want to re-arrange things to keep them from being screwed out of billions of tax dollars.  But that is all they should do, and indeed, it looks like that is all they will do.

[Berkut]

Of course it is blackmail. You pay for something that is part of my own business costs, or we go somewhere else.

And this argument is not being made to the people who actually have to pay, it is being made to politicians. It is basically "Pay up, or be the guy who lost the beloved home team to whoever".

That is not a free market in operation, since the decision makers are politicians, not consumers.

If the Braves example was a free market decision, it would be a matter of the owners saying "Hey, we think moving to Cobb Country will result in more people coming to the game and hence we can make more money moving their which justifies the cost of us building a new stadium". Not "Hey, if you don't build us a new stadium, we are moving to Cobb County who WILL build us a new stadium on the backs of the taxpayers".

It is no more a free market than public service unions negotiating with politicians about how much their votes are going to cost is a free market.

You can't have a free market if the people who are consuming the product are not the people making the decision, and the decision isn't even being made for market reasons. The politicians who are making the choices are doing so for political reasons.

[Admiral Yi]

Yep. Boy are city governments stupid.

However if the Feds are being screwed by these deals in someway, I can see why they may want to re-arrange things to keep them from being screwed out of billions of tax dollars.  But that is all they should do, and indeed, it looks like that is all they will do.

The Feds are screwed out of tax revenue on all state and municipal bonds.

[Admiral Yi]

Of course it is blackmail. You pay for something that is part of my own business costs, or we go somewhere else.

So?  The place where they currently play doesn't have any rights over the team.  They have a stadium lease, and that's all.

[Berkut]

If it's a bad deal for the city building a stadium, then that's on them.

Yep. Boy are city governments stupid.

Anytime you have a systemic problem which the root of seems to be "Gee, all these groups are stupid" it is pretty likely that the core problem really isn't that some entire group are all stupid.

It is almost certainly that you have perverse incentives leading to businesses being able to manipulate the system to unload their costs. It is easy to just say "Yeah, the politicians are dumb" but mostly they are not dumb. They are reacting to their own sets of perverse incentives.

[Valmy]

The Feds are screwed out of tax revenue on all state and municipal bonds.

If the team built that stadium the Feds would get the money, but since they blackmailed a city to do it for them the Feds get nothing. I am not sure the same dynamic exists for other bond issues.

[Berkut]

BTW, in answer to the question, no, I do not think it should be banned.

However, I do think there would be nothing wrong to come up with systemic regulations of public funding of private businesses in order to mitigate the ability of businesses to use the political process to play political actors against one another.

This is because I do believe in a free market, and it is NOT the free market at work when business blackmail communities to subsidize them.

[Admiral Yi]

If the team built that stadium the Feds would get the money, but since they blackmailed a city to do it for them the Feds get nothing. I am not sure the same dynamic exists for other bond issues.

Airport construction.  Roads and water lines to a greenfield factory or office.

[The Minsky Moment]

Further to berkut's point all the pro sports leagues are to some degree or another cartels, with de facto or even de jure partial exemption from antitrust law.  In that economic and institutional context, Berk's concerns about the lack of a free and fair market are well taken.

[Valmy]

If the team built that stadium the Feds would get the money, but since they blackmailed a city to do it for them the Feds get nothing. I am not sure the same dynamic exists for other bond issues.

Airport construction.  Roads and water lines to a greenfield factory or office.

Where is the blackmail here?

[Admiral Yi]

Where is the blackmail here?

That's the same question I asked before.

[Valmy]

Where is the blackmail here?

That's the same question I asked before.

If the City wants to pay up to keep their stupid sports franchise from leaving that's fine but I do not see why the Feds are obligated to not tax it.  That franchise is probably not leaving the US. Airports and utilities are something else.

[Berkut]

I think  my biggest point is simply that the "free market" "free market" mantra is just kind of silly when it comes to issues like this.

The free market is an economic market. It is a principle that applies to the relationship between consumers and business, and the desire to allow them to conduct their transactions with as little interference as possible, since it is assumed that interference distorts the fundamentals of what makes a free market efficient.

The decision about where to locate a business, and the tax implications and costs of building said business is a relationship between businesses and politicians. It is a not a market decision at all, except in the most tortured definition of the term. I guess you can argue that the business owner has a resource they want to sell to communities (in that they provide a tax base, jobs, etc., etc.) and they should be allowed to market that resource. But that is a pretty tortured concept of a market, and given the political implications of these decisions, it is certainly not a free market at all. It is most certainly a very, very highly managed market with an incredible number of non-free incentives that result in incredibly perverse results in many cases.

Professional sports are a high visibility, huge dollar example of this, but it happens all the time with other businesses.

The simple, TLDR, version:

The decisions to locate businesses is not anything like a free market at all - so demanding that one side of the negotiating spectrum cripple their ability to negotiate in order to protect a non-existent free market is, simply, bullshit. It is just a crap excuse to allow businesses to blackmail communities in order to let them make yet more profits and concentrate wealth more effectively in the hands of the rich at the expense of everyone else.

It is one of many excellent examples of how corporate powers use faux ideology to continue to concentrate wealth and power.