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Public Financing of the New Yankee Stadium:

ESPN reports that the New York Yankees have just broken ground on construction of their new stadium, which will be partly financed with $200 million in state and New York City government subsidies, as well as an undetermined quantity of tax exempt bonds.

There is absolutely no justification for this kind of government subsidization of big business. Studies by both liberal and conservative/libertarian economists have uniformly shown that stadium construction provides no net economic benefits to the communities where they are built. See, e.g., this study by leading sports economists Roger Noll and Andrew Zimbalist, published by the liberal Brookings Institution. Professor Zimbalist, by the way, has done work for the Major League Baseball players union, which (like the owners) has an interest in promoting public subsidization of baseball; If even he concludes that stadium subsidies do not create net economic benefits, that is a telling sign.

One could argue that, even if there is no net benefit to New York City as a whole, public subsidies for the new Yankee Stadium are justified because of the benefit to Yankees fans. I too am a big baseball fan, but I do not believe I have the right to government subsidization of my entertainment preferences. I also love science fiction, for example, but that does not justify government subsidies for science fiction writers or the producers of Star Trek and Battlestar Galactica.

In this case, moreover, average Yankees fans are actually likely to be harmed rather than benefited. According to the ESPN report, the new Yankee Stadium will have some 4000 fewer seats than the current one and a higher percentage of luxury boxes. So there will actually be fewer seats affordable to ordinary fans. Middle and lower class Yankees fans are being asked to foot the bill for the public subsidy while at the same time having fewer opportunities to go see games. Definitely a case of adding insult to injury! The stadium subsidy is a straight wealth transfer from New York taxpayers to multimillionaire Yankees owner George Steinbrenner, his wealthy players players, and (to a lesser extent) those few fans who can afford luxury boxes. Of course there may also be some dead-weight losses to society as a whole. To be clear, I am not opposed to George Steinbrenner wanting to build a stadium with more luxury boxes, if he spends his own money on it. But I do oppose government subsidies for this kind of activity.

Some longtime VC readers might suspect that I am only blogging about this issue because I'm a die-hard Boston Red Sox fan and don't exactly have warm feelings for the Yankees. I don't deny disliking the Yankees. But I also opposed 1980s and '90s plans by the Red Sox to build a new Fenway Park also partially financed with public funds. In any event, the possible impurity of my motives in no way undermines the validity of my point!

UPDATE: Some commenters argue that the stadium subsidy is defensible because the public money is being used to pay for new public infrastructure in the area. In reality, as news reports make clear, infrastructure is only part of what the $200 million in public funds will be spent for (see, e.g., here). More to the point, if the infrastructure is only needed because of the construction of the new stadium, using government money to pay for it is no less a subsidy to the Yankees than if the money were used solely on the stadium itself. Subsidization of infrastructure that is purpose-built in order to complement a specific privately owned construction project is no different than subsidization of the project itself, and must be judged by the same standards.

Mike529 (mail):
Besides the Yankees have no leverage at all. What are they going to threaten to do, go to Los Vegas?
8.17.2006 10:32pm
Milhouse (www):
Actually, I believe they threatened to go to New Jersey.
8.17.2006 10:38pm
breen (mail):
That's an interesting point. Despite the lack of economic benefit from public financing, do the studies take into account the loss of teams due to competitive bidding?
8.17.2006 10:43pm
Ilya Somin:
Despite the lack of economic benefit from public financing, do the studies take into account the loss of teams due to competitive bidding?

The point of the studies is that having the team in town does not actually produce economic benefits for the community. Obviously, losing the team to another city might be painful for fans, but I don't see why nonfans should subsidize this preference. Moreover, if no city were allowed to subsidize stadium construction, there would be no competitive bidding of this kind.

Finally, as commenter Mike529 points out, the Yankees are highly unlikely to leave the most lucrative market in the country just because they couldn't get a stadium subsidy. If they move somewhere else in the NYC metro area, their fans could still go to games and root for them. For some, it would actually be more convenient than if the team stays in the Bronx.
8.17.2006 10:53pm
jgshapiro (mail):
Doesn't the behavior of virtually every city faced with the possible loss of a team belie your argument? That is the "market," when you are speaking of baseball stadiums.

Since there are more cities who would like a team (especially the Yankees) than there are teams to go around, if you don't pony up some subsidies, you will be left empty-chaired when the music stops.

The net benefit is not only to the area (the South Bronx) over other competitive areas in NYC, but also to the city (NYC) over other competitive areas in the vicinity (NJ, Long Island, Weschester County, even CT).
8.17.2006 10:55pm
Ilya Somin:
Doesn't the behavior of virtually every city faced with the possible loss of a team belie your argument? That is the "market," when you are speaking of baseball stadiums.

It would be a "market" if the city officials were spending their own money. But they are in fact spending taxpayer money. There are lots of situations where governments spends taxpayer money on things that do not actually benefit the taxpayers, and this is just one of many. I suspect that ordinary voters in NYC and elsewhere simply don't know about the economic costs and benefits of stadiums, just as citizens are often ignorant about many far more important political issues. See my many posts on political ignorance at this site.
8.17.2006 10:59pm
byomtov (mail):
The stadium subsidy is a straight wealth transfer from New York taxpayers

Since part of the financing is from tax-exempt municipal bonds, isn't there also a transfer from all US taxpayers?
8.17.2006 11:00pm
Hei Lun Chan (mail) (www):
The average Yankee fan is harmed by having fewer seats, but benefits when their team has more money to spend on players. By the time the stadium is done, their payroll will be $300 million. Not that this justifies spending public money, but it does explain why so many people support this kind of thing even when the lack of net economic benfits is obvious.
8.17.2006 11:10pm
jgshapiro (mail):
It would be a "market" if the city officials were spending their own money. But they are in fact spending taxpayer money.

I'm sorry, I don't understand your argument. Cities always spend city money on city assets, and city money comes largely from taxpayers (I suppose a minority comes from user fees and federal grants -- but the funds for federal grants come mostly from federal taxpayers). City officials act on behalf of the city.

And before you argue that the asset is owned by Steinbrenner and not the city, Yankee stadium is a city asset even if it is not owned by NYC because it brings fans and business to the Bronx/NYC and is something for both to tout. It is an 'asset' in the conventional sense (if not the accounting sense) because it adds value to the city.

So the market is city-to-city, or county-to-county, or state-to-state. NYC has to pay for as much of the stadium as is necessary to deter the Yankees from taking their business elsewhere, to a place where city officials *are* willing to ante up.

If NYC won't help pay for the stadium, Herr Steinbrenner goes to the mayor of Newark or the mayor of some town on L.I. or to Gov. Corzine and says: how would you like to have the new stadium in your backyard, get the tax revenues (eventually), get the incidental business from parking, concessions, and fans traipsing through your neighborhoods (and spending money in your town) instead of the Bronx? Meanwhile, the Bronx, and NYC in general, loses a tourist attraction. (It's my understanding that the South Bronx doesn't have a lot of these to go around.)
8.17.2006 11:22pm
Waldensian (mail):
Many thanks for mentioning this issue.

I can't get over how many "conservatives" I know are in favor of public financing of baseball stadiums. These people go on and on about the benefits of this great "investment," sounding vaguely like a New Dealer or perhaps an Albanian newspaper's editorial page.

When confronted with the fact that they simply like baseball, and want to stick the rest of us (who are bored to tears with baseball) with the bill, the conversation tends to head straight to righteous indignation and denial.
8.17.2006 11:30pm
Bruce Hayden (mail) (www):
I think that the absurdity of the whole thing is that this is the team that can afford to pay its players somewhere around twice what its nearest competitor in this area can, and that is in turn better than twice that of the teams with much lower payrolls. So, the Yankees could afford to have done it themselves, and still maintain the highest player payroll of any MLB team.
8.17.2006 11:31pm
Waldensian (mail):
I should add that, as bad as public financing of baseball stadiums may be, it isn't as horrible as what the Europeans achieved with the Concorde: government subsidized luxury transportation for the super-wealthy. Awesome.
8.17.2006 11:31pm
JerryW (mail):
Andy Zimbalist has been a consistent opponent of any government entity subsidizing the construction of new sports facilities. Although he has been a consultant to unions, as a professor I believe he tries to be fair and non-partisan. However, recently he did come out for government support of a new Brooklyn arena for the NBA basketball Nets. He felt it would be a net plus for the city. Ratner, the owner/developer plans to surround the arena with tax and job producing properties which would raise enough tax dollars to pay the government back. I did point out to him that if Ratner just built these other properties without the arena it would be even a greater plus to NYC. Of course this way Ratner gets an arena for his team with NYC's help.
8.17.2006 11:33pm
Jacob (mail):
Ilya's leaving out a few bits of context more significant than the Boston affiliation.

The number of other cities who have done the same thing over the past few years? Ridiculous. The state of Pennsylvania has made significant contributions to four(!) new stadia in the past half-decade, and is considering adding a hockey arena to the mix. New York City has paid for no similar project in recent years.

In fact, it just rejected a proposal wherein it would pay for half of a much more expensive Olympic Stadium/Future Jets Field, and one of its cited reasons would be that the burden on taxpayers would be too great. The governmental contribution to the new Yankee Stadium is much, much less than this would have been.

One of the reasons the new Yankee Stadium is costing the government so much is because the team wants to retain the stadium's name. It could save "the fans" and their fellow taxpayers a lot by selling the rights, but then it would get to deal with the fans turning around and complaining about having to sit in Corporate Industries Park.

Ilya also jumps right from a study that concludes there are no net economic benefits to stating that there is no net benefit to the City as a whole (then going on to discuss possible benefits to just fans). This stadium's qualifications are arguable, but surely there are ways to benefit the City as a whole that aren't directly economic? (This is where the people on the left insert "schools" and the people on the right insert "malfunctioning missile shields.")


I too am a big baseball fan, but I do not believe I have the right to government subsidization of my entertainment preferences.

This statement, too, struck me as pretty peculiar. I guess I missed all the Yankees fans lobbying the city claiming they had "a right" to the new stadium. Maybe I just live near the 4000 who are staying home from now on.

Various governments have subsidized a great many hobbies in the past, with far less complaint. After all, I'm definitely going to get a lot more use out of this new stadium than Gettysburg or the Grand Canyon (one trip to each were really enough for me). I'm sorry the Trekkies are on the outside looking in this time, but maybe the next round of politicans will be nerdier and have fewer sports fans.

Now, I still would vote against a referendum where the government pays for a part of a sports stadium (even though I would come to use it often). Like Ilya, I believe there are better ways to spend its previous funds. But this is one of the comparably mild instances of this particular vice. NY fought the team for years on this and talked it down to the $200 million. Milwaukee paid a lot more for a stadium that gets a lot less use (and surely NYC can afford the bill more than Milwaukee can?).
8.17.2006 11:40pm
Phil333333:
This isn't gov't handouts. The Yankees are paying the entire cost of the stadium. The $200 million is for renovations to public parks around the stadium, to encourage youths in the Bronx to play baseball on beautiful fields and have a nice green area to play in (a stark contrast to the rest of the Bronx if you've been there) and for transportation improvements in the area, to improve traffic flow and parking.
8.17.2006 11:57pm
Kazinski:
What do economics have to do with it? Governments have been subsidizing atheletic stadiums at least since the ancient Greeks. It is part of our cultural heritage. I'd shut down all the publicly funded museums before I'd see a single baseball game cancelled. If a ballot question was put to a vote of the people of New York (or most major cities):

A) sports stadiums
or
B) Museums and 1% for the arts laws

I've no doubt what the people would decide.
8.18.2006 12:33am
Kmaster31 (mail):
Let's see:
Stienbrenner - 800 million of self financed money for stadium
City and State - 200 million for upgrading infrastructure in the entire area, including trains, subway, parks and roads

ONE BILLION freakin dollars!!!
Anybody who wants to invest three quarters of a billion dollars into a project that affects an entire city, especially one that promotes the long and storied history of a team like the Yankees, that's a man who I can get behind. Besides, I agree with Jacob, the benefits of something like a stadium extend beyond the economics involoved; the Yankees are part of what makes New York the city it is. Now all I have to complain about is finding the time to catch a game there before 2009.
8.18.2006 2:11am
Michael Benson (mail) (www):
Ilya Somin:

There are lots of situations where governments spends taxpayer money on things that do not actually benefit the taxpayers, and this is just one of many. I suspect that ordinary voters in NYC and elsewhere simply don't know about the economic costs and benefits of stadiums, just as citizens are often ignorant about many far more important political issues.

I suspect that you are looking at this issue a little too narrowly. Do you suppose that there would be no voters who a) would be totally aware of the lack of economic benefit and b) willing to pay the money anyway? For example, suppose a study showed that there was no public benefit to placing a statue in a city. Do you think that nobody would support the public funding of statues anyway?

I think it's quite possible that the people of New York think of both the Yankees and the stadium as something like a monument to the city, and a point of pride. From this perspective investing in more modern facilities would be about preserving the overall image of the city.

One might question the rationality of such a judgment. But, I don't think it's at all clear that support for a stadium can be panned simply as voter ignorance about economic studies. It is perfectly possible the plenty of voters don't care, or don't care enough to change their votes.
8.18.2006 2:14am
Joshua (www):
Here in the Twin Cities, stadium construction financing (three new stadiums in this case, one each for the Twins, Vikings and University of Minnesota football) has been a big political issue over the last several years, with the usual economic arguments for and against it. What's interesting is that Minnesota governer Tim Pawlenty has made the pro-stadium case as mainly a quality-of-life issue, rather than an economic one.

Gov. Pawlenty has touched on the trickiest aspect of public stadium financing. While having major league sports teams in town may or may not have tangible (e.g. economic) benefits to a community, they do have intangible benefits, such as civic pride and prestige (a major reason why Green Bay, Wisconsin, by far the tiniest major sports market in the U.S., has historically gone to such famously great lengths to keep the Packers in town) and the teams' role as something everyone in the community can rally around, regardless of socioeconomic standing, political persuasion or what have you (which, if I'm reading him correctly, is what Gov. Pawlenty has in mind). The tricky part, of course, is deciding how much these intangible benefits are worth to a community in terms of tangible resources.
8.18.2006 11:07am
AaronC:
Prof. Somin,

You're absolutely right that the research shows that the subsidization of satdiums is a losing proporsition. But a quick note - Brookings isn't a liberal thinktank - it's non-partisan and, if anything, centrist.
8.18.2006 11:09am
AaronC:
Plase forgive the myriad of typos in my above post! :)
8.18.2006 11:10am
A.S.:
I do not believe I have the right to government subsidization of my entertainment preferences

HUH???

This makes no sense whatsoever. Nobody has said that Yankee fans have a RIGHT to government subsidization of their entertainment preferences. The government has CHOSEN to do this. Just like every single other subsidization of entertainment the government chooses to do.

Hey, do you enjoy walking in the park? Government subsidizes the parks, you know.

Do you enjoy swimming in a municipal pool? Government subsidizes the municipal pool.

Do you enjoy fishing in a stocked lake? Government subsidy.

Here's the "entertainment preferences" that New York City subsidizes: 614 ballfields, 991 playgrounds, 550 tennis courts, 51 outdoor swimming pools, 10 indoor swimming pools, 36 recreation centers, 14 miles of beaches, 13 golf courses, 6 ice rinks, 3 major stadia, and 4 zoos.

Does Professor Somin object to the subsidization of ALL of these "entertainment preferences"? Or just "entertainment preferences" that also involve a private business (hmmm, there are lots of private businesses that use Central Park, you know)? Or is it just Yankee Stadium he object to?

Moreover, Prof Somin ends his review of the cost/benefit of the new stadium with the fact that there are less seats. But he never even discusses that the stadium as a whole is to be upgraded - so the quality of the remaining seats should be higher! Yankess fans are trading off a few extra seats for higher quality seats all around. That may in fact be good for Yankee fans.

Overall, this seems to me to be a very unthoughtful post.
8.18.2006 1:40pm
KeithK (mail):
First off, I'm a Yankee fan who is very disappointed that the team is going to build a new stadium. Why do you need to tear down the House that Ruth Built when you sell 4 million tickets per game?

On the other hand, I am very pleased to see that Steinbrenner is picking up the tab for constructing the stadium. Yes, $800 million is expensive, but obviously there's a good business reason to do this. There's been a little bit of a move away from public financing lately (the cardinals paid for new Busch, for example), which is a good thing. Big business can afford to invest in it's own.

The $200 million that NYC and NYS are contributing is for infrastructure and parks in the vicinity. Unless we want to go back to the old system where the NYC subway was privately owned (IND, BMT, IRT) then it's the job of the state and city governments to pay for improvements to the system. Likewise Metro North. Similarly public parks are the province of public money. This isn't to say that this is the best way to spend the money, but it's not unreasonable.

I do object to the new place having fewer seats. I prefer to buy walkup and this makes it less likely that any will be available. (Who am I kidding? The place will sell out in advance for years!)


Moreover, Prof Somin ends his review of the cost/benefit of the new stadium with the fact that there are less seats. But he never even discusses that the stadium as a whole is to be upgraded - so the quality of the remaining seats should be higher! Yankess fans are trading off a few extra seats for higher quality seats all around. That may in fact be good for Yankee fans.

Having spent many days in Yankee Stadium and having been to almost every park in the majors, I find it very unlikely that the quality of seats will be improved. Seating in the second and third decks of HOK ballparks is very far removed from the field because they don't let the decks overhang each other. Upper deck seats in the current Yankee Stadium are much closer to the field and provide a better view, plau some chance of foul balls. But if all you care about is cupholders then you might disagree.
8.18.2006 2:25pm
steveh2:
A.S. hit it exactly on the head. Prof. Somin, I respectfully submit that you are off base when you say that "[t]here is absolutely no justification for this kind of government subsidization of big business." The justifications for keeping a team in a city are largely the same as those for museums, parks, and the like.

Your post would have been much more accurate had you said that there is no economic justification.
8.18.2006 4:59pm
dweeb:
Since there are more cities who would like a team (especially the Yankees) than there are teams to go around, if you don't pony up some subsidies, you will be left empty-chaired when the music stops.

And so what? What's the actual, material cost of the empty chair? As was pointed out:

The point of the studies is that having the team in town does not actually produce economic benefits for the community.

The best illustration of fan/voter stupidity in this "big lie" blackmail game is Jacobs Field in Cleveland. The Jacobs brothers threatened to move the team if they didn't get a new ballpark, with all the implied threats that the city would become an economic wasteland. No one seemed to notice that the Indians represented a tiny percentage of the Jacobs' holdings, and that most of their wealth was tied up in commercial (retail) real estate in Cleveland. If moving the team would harm the city's economy, the Jacobs' own losses from such harm would far exceed what they could ever hope to gain from having a new ballpark. Thus, the threat was either a bluff, or they'd already done the analysis to show that making good on the threat wouldn't really hurt the local economy, to which their own fortunes were inextricably tied.
The real earning potential of a major league sports franchise lies not in the team, but in the sweetheart lease of the facility. The rent most team owners pay wouldn't even come close to covering the interest on a loan to build the facility themselves, and they can book it for non-sports events. The team owner's cut from a weekend of U2 concerts is more than he'll earn from the team itself in a year, and all he has to do is sign the contract and the promoter takes care of everything.
8.18.2006 5:32pm
Aaron:
I simply object to the inaccurate characterization (pointed out by many other commnenters) that the government is "subsidizing" the stadium. Government exists to maintain PUBLIC parks, streets, transportation utilities and infrastructure. Requiring the Yankees to pay for these public services would seem to be the greater evil--yet that is what Prof. Somin appears to endorse. Tsk. Tsk. (8-3, BTW)
8.18.2006 5:34pm
Ilya Somin:
Several commenters have argued that I have ignored "noneconomic" benefits of the new stadium. But the question is: what noneconomic benefits?

I did consider the benefit the stadium might provide to Yankees fans. I don't see any other benefit that might be relevant, certainly not one that can justify over $200 million in public subsidy.

On a related note, several of you argue that this subsidy is justified because there are government subsidies for many other activities. Without going over each case in detail, I think many of the other cases are just as indefensible as this one is, except that few of them involve as large an outlay of public funds.

Government-provided recreation facilities (e.g. - parks) may in some cases be defensible, but on grounds that do not justify subsidizing professional sports stadiums. The former might be economic public goods in the technical sense of the term; they are nonexcludable and (too an extent) nonrivalrous and therefore might be undersupplied by the market

The latter definitely are not because going to see a Yankees game is both rivalrous (2 people can't sit in the same seat) and excludable (the Yankees can keep out customers who don't pay). Private enterprise is more than capable of providing this type of good without subsidization and indeed did so for decades before government subsidization of sports stadiums began.
8.18.2006 7:26pm
MatthewM (mail):
A.S.,

I don't understand your criticism of I.S.'s post. From what I read here, Ilya is a pretty strict libertarian; I'm sure he (like me) would indeed object to the use of government funds to stock lakes with fish, fund swimming pools, etc. So there is no hypocrisy with his attacks on subsidies for Yankee stadium.

But more importantly, your pooh-poohing of his objections doesn't lead to any limits on what the government should or should not subsidize. If it is out of bounds to criticize a new government subsidy because the government already subsidizes many frivolous activities, then there is no limit or logical stopping point to government expenses. $100 billion subsidies for badminton courts, anyone?

Previously, government subsidies for pools, parks, etc. have been justified by asserting that the poor will now be able to experience what only the rich could purchase heretofore. Ilya is right to pick on the Yankee stadium subsidy, since it is clearly a sop to the wealthy -- actually, to the ultra-wealthy. There isn't even an egalitarian argument for it, let alone an economic rationale.
8.18.2006 9:36pm
Lev:
When is NYC going to subsidize new Walmarts, and new oil refineries too?
8.19.2006 1:04am
Michael Benson (mail) (www):
Ilya Somin:

Several commenters have argued that I have ignored "noneconomic" benefits of the new stadium. But the question is: what noneconomic benefits?

I did consider the benefit the stadium might provide to Yankees fans. I don't see any other benefit that might be relevant, certainly not one that can justify over $200 million in public subsidy.


I take this to be a little bit different than what you said before. Before you indicated that the reason that voters would support such a thing is ignorance of the economic consequences. The presupposes that no voters believe there to be non-economic benefits worth $200 million. It's not at all clear to me that that's true. You may be totally unconvinced of this, but that isn't great evidence on which to conclude that nobody else is (indeed the fact that several posters brought it up would seem to be evidence that it's plausible that at least some voters might have non-economic goals).
8.19.2006 3:01am
dweeb:
Why do you need to tear down the House that Ruth Built when you sell 4 million tickets per game?

Because it's more profitable to sell fewer, higher priced tickets. Same revenue, fewer fans to provide services to.
8.21.2006 12:40pm
dweeb:
Yankee stadium is a city asset even if it is not owned by NYC because it brings fans and business to the Bronx/NYC and is something for both to tout. It is an 'asset' in the conventional sense (if not the accounting sense) because it adds value to the city.

Almost all the money spent at a major league sports event was earned within 50 mles of the facility, and thus would have been spent in the community one way or another.

After all, I'm definitely going to get a lot more use out of this new stadium than Gettysburg or the Grand Canyon (one trip to each were really enough for me).

I think you'll find the number of person/trips to the Grand Canyon outnumber cumulative MLB attendance nationwide.

the teams' role as something everyone in the community can rally around, regardless of socioeconomic standing, political persuasion or what have you

This is the biggest joke of all. I can get any city a win in the Super Bowl, the World Series, the NBA Championship, and the Stanley Cup in one year, for 1/4 the Yankees annual payroll. Give me 10 chimpanzees, 10 orangutans, and 10 gorillas, and a team of animal behavioralists. You'll win every league, and never have to worry about player date rapes, paternity suits, drug busts, DUI's, motorcycle wrecks, assaults, or other scandals, because after the game, you put them in their cage, give them a bowl of fruit, and go home. Yet, people actually take pride that their communities pay grown adults millions for a lesser performance, and tolerate behavior from them that they wouldn't accept from a three year old. In the 1990's, when health care reform was the hot topic, people got upset that a physician, who spent 10 years training, working insane hours, to prepare to be able to save lives, might actually earn enough to pay off his student loans and have a modest suburban home, but think nothing of paying thousands for a personal seat license to make millionaires out of illiterates. It's all about bread and circuses, just like in old Rome - at least their gladiators competed at things that had some practical application, rather than chasing balls around.
8.21.2006 12:42pm