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New York Gov. Hochul announces "parameters of conceptual" budget deal, two weeks after deadline

Stanford economist warns new Bills stadium deal likely a poor investment

New York Gov. Kathy Hochul
Pat Bradley/WAMC
New York Gov. Kathy Hochul

Governor Kathy Hochul is heralding a deal to keep the Buffalo Bills in New York. After months of talks, the Democrat says a new $1.4 billion stadium in Orchard Park will be largely paid for by taxpayers. Under the agreement, the National Football League and the Bills will contribute a combined $550 million, while Hochul wants to add $600 million in state funding for the project. Erie County will contribute $250 million in a deal Hochul says locks the Bills in for another 30 years.

While Bills fans are no doubt thrilled to keep Josh Allen and company around for future Super Bowl campaigns, debate over the timing of the agreement, with the new state budget, and the wisdom of it is pitched. To discuss public investment in sports stadiums, WAMC spoke with Roger Noll, professor emeritus of economics at Stanford.

You've had a chance to read the agreement. What's your reaction to it?

Well, it sets the new indoor record. Buffalo will move past Las Vegas as the city's that has given the most money to a billionaire owner to build a stadium. And it reflects a reality that the people who live in Buffalo and the people who live in New York in general, and certainly the political leaders, like the governor, are caught between a rock and a hard place. On the one hand, we know that the rosy financial projections about how it will pay for itself with new tax revenues, we know that's not true from decades of research. There's literally no support for that concept in any economics research that has ever been done. On the other hand, the underlying reality is that the NFL is a monopoly that has fewer teams than there are cities that want them. It's a difficult situation to be in if you're a politician and a difficult situation to be in I f you're a New York voter.

Why don't stadiums generate enough revenue for municipalities and states to justify the investment?

Because almost everybody who attends the game is local, they live in the same metropolitan area. There's almost no tourism generated by NFL games, because they're sold out on a season ticket basis to people who live locally. There's only a handful of tickets available to walk-ons or to people who are just going to go one-off. And so the number of visiting fans who come to the city to spend money to see their team is incredibly small. So what us all sports teams do is simply reallocate discretionary spending on entertainment and recreation from other things to the stadium.

So restaurants in general have less business, bars have less business, theaters have less business, and that's where the money comes for the football team. And then the actual employment characteristics of the football team are that almost all the money is paid to a relatively small number of very high salary individuals, players, coaches and executives. At most, a couple of hundred people have full-time jobs working for the team. Paying a billion dollars, more or less, to employ a couple of hundred people is extravagant. Yes, during game days, four or five hour shifts go to another few hundred people, but the number of full time equivalent jobs there is also at most another 100 or so. So it's just not a very effective way to generate economic activity. It's taking money away from businesses that pay people $40,000 or $50,000 a year and giving it to somebody who pays their employees millions of dollars a year.

Now, there was a fear, of course, and this is always the case with new stadium talks, about the team leaving. Is there an argument to be made that had Buffalo bolted for a different city, that the resulting loss to the area would be just as sizable?

No, the interesting fact of life is, again, that specific question has been researched six ways from Sunday. Looking at employment effects, looking at income effects, looking at business location effects, looking at property values, everywhere you can think of about economic impact. And the departure or arrival of a professional sports team of any kind, a football team or anything else, has essentially zero effect on any of those measures. And that's again because it's not something that determines the economic health of a metropolitan area. It's a frill, it's something that people enjoy. Now, that doesn't mean it's not a loss if the team leaves because the football fans will be what's much worse off, they'd much rather go to a football game than go to the theater or something like that. So they are worse off. But it doesn't show up in any economic statistics, doesn't show up in income, employment and anything else you can measure.

Now, how long has this type of arrangement been the custom with major sports teams and cities?

You know, the fascinating thing is, I had thought until a few years ago that the battle had been won, that the fraction of the cost of stadiums that was being subsidized by state and local government was falling. And indeed, they began to lose referenda. Like in San Francisco, the subsidizing to retain the Giants lost four consecutive ballot measures. in Pasadena, the citizens voted 80 to 20 not to give the Rose Bowl to the NFL. So I had sort of thought it was all over.

And then along came Vegas, where they did $750 million of direct subsidy, plus another $150 million of infrastructure investment for nearly a billion dollars of subsidy for a $2 billion stadium. And that sort of broke the mold and put us back on track of these extensive subsidies. I think right now it's up for grabs. On the one hand, there are lots of cities in financial trouble because of deals like this. Currently, there are eight lawsuits going on in Santa Clara between the city of Santa Clara and the San Francisco 49ers because the rosy financial projections that gave rise to the stadium project didn't prove to be true.

Likewise, the City of Glendale, Arizona almost went into bankruptcy over its sports deals. And similar things have happened in Cincinnati and Pittsburgh and things like that. So these stories that have accumulated about a decade ago, of cities getting into deep financial trouble because of their subsidies of sports facilities, had pretty much put a damper on the growth of the subsidies and they were going in the other way. Then all of a sudden, the loss comes Vegas and Buffalo, which break the mold. Notice that LA has a $5 billion stadium, privately financed, the only thing they gave away for the stadium in LA was to give it tax relief, to give it exemption from the property tax. So the Rams and the Chargers paid for their own stadium at the tune of $5 billion, which is very different than Buffalo paying almost a billion to keep their team.

So in your view, the issue seems to be that unless there's agreement among municipalities not to be the one that breaks and makes the offer, or states here, that it's going to be difficult to go back to the model that you would favor where it's private investment.

Yeah, exactly. And you hit the nail right on the head. There's competition among cities for teams, and the NFL knows that. And they use this competition as a credible threat to leave. And so you're faced with the horns of a dilemma. You either have to lose the team, which is a serious disadvantage if you live in the city. You know, that's not good, because you don't like it, or to pony up a lot of money, what can be hundreds of dollars per capita, to keep them there. And that's the choice that people face. And very few cities are willing, if that's really a credible threat…I think in the case of Los Angeles, such a lucrative market, that it wasn't a credible threat that that the NFL would never have a team in LA. But they managed not to put one there for 20 years before they finally made the deal with the with the Rams and the Chargers. I don't want to be too harsh on the governor or the or the city government of Buffalo, because in an election year, they face a tough choice. There's two potential bad outcomes. And the ‘pay the subsidy bad outcome’ won't be visible for two or three years, whereas ‘the lose the team’ outcome will be visible immediately.

Yeah. And in New York and Buffalo, you could definitely lose an election over the Bills leaving. There is no question about that.

That's exactly right. And that's the position that politicians especially in smaller cities persistently face, and that leads to subsidies.

Just one more thing. You have spoken in the past about the impact on the surrounding neighborhoods of new stadiums under the current model of new stadiums where they're effectively shopping malls with a playing field. What does it do to surrounding areas when one of these new major stadiums comes in?

It reallocates the discretionary spending part of the economy, the service economy, to the neighborhood of the stadium and away from the rest of the metropolitan area. So what you observe, you can actually get detailed data on things like sales taxes and property taxes through the entire metropolitan area. The old model was you, you, you plunk down a stadium, and then you surround it by acres of parking lot. And then you surround the parking lot with a freeway so that there was no economic interaction between the stadium and the rest of the neighborhood.

That’s the Philadelphia model.

Yeah, exactly. And the Los Angeles model, the NFL Stadium in Los Angeles, you integrate the stadium into the local economy like it's a smooth transition from the concessions of the stadium into the shopping malls. They're just integrated together. And what that does, of course, is create a little boomlet right there in that neighborhood. Because the stadium stops being an economic black hole for the neighborhood. But it doesn't increase total spending on restaurants in the whole metropolitan area. It doesn't increase total amount of clothing sales in the whole metropolitan area. It just reallocates it to the area around the stadium and away from other places.

A lifelong resident of the Capital Region, Ian joined WAMC in late 2008 and became news director in 2013. He began working on Morning Edition and has produced The Capitol Connection, Congressional Corner, and several other WAMC programs. Ian can also be heard as the host of the WAMC News Podcast and on The Roundtable and various newscasts. Ian holds a BA in English and journalism and an MA in English, both from the University at Albany, where he has taught journalism since 2013.
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