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« Back to The Economics of Professional Sports main page    Transcript for: The Economics of Professional SportsSports.htmll ANNOUNCER: Think Tank is made possible by AMGEN, recipient ofthe Presidential National Medal of Technology. AMGEN, helping cancer patients through cellular and molecular biology. Improving livestoday and bringing hope for tomorrow. Additional funding is provided by the John M. Olin Foundation,the Lilly Endowment, and the Lynde and Harry Bradley Foundation. (Musical break.) MR. WATTENBERG: Hello, I'm Ben Wattenberg, at Market SquareArena in Indianapolis. American cities are spending billions of dollars tolure or keep their professional sports teams, and many people arebeginning to ask, is it worth it? The topic befor e the house, should American cities play ball with professionalsports, this week on Think Tank. (Musical break.) MR. WATTENBERG: The Roman poet Juvenal said that the peopleonly wanted two things, bread and circuses, and to give them the latter Roman emperors spent vast sums building public arenas. Not much haschanged in 2,000 years. Fans flock to American sty le circuses, in modern and very expensive stadiums. In Cleveland, Jacob's Field and the nearby Gund Arena cost over $300 millionwhen they were built in 1994. Baltimore spend $210 million to build OriolePark at Camden Yards, breathing new life into th e heart of downtown. The stadium packs in fans, and has becomethe symbol of the new, old-style, more intimate ballparks. Who pays for these stadiums? That depends, 14 percent arefunded privately, at little cost to the taxpayers. For example, inWashington the Capitals and the Wizards owner Abe Polen pulled out hischeckbook for the new MCI Center in the heart of downto wn. Another 20 percent are funded entirely at taxpayer expense,often to lure a new team into a city. The majority of stadiums, abouttwo-thirds of them, are funded by some sort of public-private partnership,using a variety of taxes and government bon ds. As the competition for teams and stadiums increases, so do thecosts. And opponents charge that the owners and players are making outlike bandits, at taxpayer expense. Senator Daniel P. Moynihan doesn'tlike it. He has proposed a bill to end the tax exemption for municipal bonds that fund these arenas. So what'sall the fuss about? In a few moments we will turn to an expert panel. But, for background, we took a look at one city, Indianapolis, and talkedto owners, politicians, and team managemen t. Indianapolis is an example of the 40 cities that play host tomajor professional sports teams in America. Back in 1984, Indianapolishit the front pages by allegedly stealing the revered Baltimore Colts,part of the deal, a sweetheart lease at a brand new, $95 million, domed stadium. Now, only 13 years later, theColts are once again unhappy. MR. IRSAY: Between '98 and 2001, I lose $30 million. I mean,there is no ifs, ands, or buts. I mean, it's not a question of maybe. But clearly, you cannot survive if you stay at the figures that we arewith our stadium. MR. WATTENBERG: What do you get out of a new stadium thatmakes it so attractive? MR. IRSAY: I think that the key thing for a new stadium has tobring the ability for you to be able to market yourself and sell seats, particularly the expensive suites and club seats, that's where yougain the biggest jump. I mean, I'll give you an e xample, the Redskins are building a new stadium, in your part ofthe world. MR. WATTENBERG: Right. MR. IRSAY: Two-hundred and eighty suites -- MR. WATTENBERG: The center of the world, as we like todescribe it. MR. IRSAY: The center, no question. MR. WATTENBERG: Where all your money goes, right. MR. IRSAY: No, question, 280 suites at $100,000 a suite. Now,that is not shared with other teams, because suite revenue isn't. That's$28 million a year, $28 million that they receive directly. Now, whatdo I have? I have 90 suites at $30,000. Th at's $2.7 million. I'm not asking for a new stadium at this date. It's the Pacers turn. I have no problem with that. You know, ourstadium was $82 million to build, the Pacers stadium is going to be $175million. But, I'm not asking for a new stadiu m, even though I don't think it would be unusual to do so. Detroit, the Silver Dome is coming down, new stadium. Seattle, the King Domeis coming down, new stadium. Minnesota, the Metro Dome is coming --the only dome that's -- MR. WATTENBERG: And basically, even more so than here inIndianapolis, those cities are getting taxpayer relief for those stadiums? MR. IRSAY: All of them are. And I think we've entered thisvery interesting world, where now as an owner, you've become partpolitical animal. I mean, you have no choice but to enter the fray. Andyou're almost like some sort of, you know, political figure that has to go into the marketplace. You know, Eddie deBardlow (sp), a great friend of mine in San Francisco, just had to go doorto door, and try to garner support for the referendum to get the voteand barely got it. But, I mean, I talked to Eddie and, I mean, he's knocking on doors in San Francisco tryingto get the vote. I mean, no different than a mayor or a governor. MR. WATTENBERG: When you come to renegotiate, or opennegotiations with the City of Indianapolis, your basic position of strength is,although you say, look, I don't want to move this team, I loveIndianapolis, it's a great sports town, all the things that you say, and quite convincingly, but the club in the closet, unstated, that you don't have to say to anybody is, look, youknow, satisfy me, I'm out of here. MR. IRSAY: That is a factor, and that's the biggest bomb,that's your hydrogen bomb. But, let me really emphasize that what happensmore times than not, and can happen, and would happen with me more likely, isI have one place to go to and that's play er costs. Cincinnati did it, the Brown family had to address --run their team like a business. There has been family ownership therefor years. Mike Brown said, I have a bad stadium deal, I have adifficulty competing in revenues, until I fix this my only solution is to go to player costs. MR. WATTENBERG: The Colts are not the only fidgety team intown. The city has just broken ground on a new stadium to hold onto itsbasketball team, the Indiana Pacers. In an era of munificent playersalaries, the Pacers say they need a new arena to r emain competitive. Donnie Walsh is the President of the Pacers. MR. WALSH: The NBA shares some revenues, we have a commonnational TV contract, and several others. But, we don't pool all therevenues. And so there is a distinct difference between the television marketsin New York, and the television market in LA , and the television market in Chicago, and that in Indiana. Andthat's one big disparity. But, we have to recognize that we are in asmaller market where we can't compete, and so therefore, we are going toour city and saying, we have to have a new ar ena, because if we don't -- aren't able to generate the revenuesthat can keep us competitive, then it puts us in a difficult position. MR. WATTENBERG: There are supporters and detractors of the new Indianapolis arena. And, as so frequently happens, the electedmayor has to please both sides. Mayor Goldsmith, you are known as a sort of Mayor privatizer. You're a strong believer in the market. And we have a situation here in Indianapolis with the new arena going up, maybe you could tell usabout it, and why you are sort of schizophrenic abo ut it? MAYOR GOLDSMITH: Well, schizophrenic is a good word. This isa real test of our philosophy. We've reduced government down to itscore, privatized/competed 70 city services, reduced the work force by 45 percent on the premise that the best place to cr eate wealth and value is the marketplace. Now, suddenly, I'm apartner in a basketball/entertainment arena for the Pacers. The migrationor the tension resulted from the fact that in center cities, hospitality/entertainment are great sources of jobs. It's a 45,000-person hospitality, it's a 45,000-person employmentcenter, $1.6 billion effect on our local economy. MR. WATTENBERG: Here in Indianapolis? MAYOR GOLDSMITH: In Indianapolis. And, you know, around thecountry, large cities are relying on entertainment/hospitality conventionas one of the core competitive advantages of the inner city. Now, that'snot driven necessarily by an arena, it's dr iven more by a convention center, but it's a package ofactivities. So, I came to the conclusion that if I could keep the Pacers, buildthe arena, bring two million people downtown into the arena forconcerts, not raise taxes, and not divert any money f rom what would otherwise have been available for streets andschools, then I would help with the arena. And that's where we ended up. MR. WATTENBERG: Market Square Arena in downtown Indianapolisis the present home of the Pacers, and the momentary home of Think Tank. We are joined by Professor Mark Rosentraub, director of IndianaUniversity's Center for Urban Policy and the Environm ent, and author of Major League Losers, the Real Costs of Sportsand Who's Paying For it, and William Hudnut, former Mayor ofIndianapolis, and now a senior fellow in Washington, D.C., at the Urban LandInstitute. Gentlemen, start your engines. MR. HUDNUT: Good line. MR. WATTENBERG: Good line. At your prompting, Bill Hudnut,and Mark Rosentraub, it's good to have you with us on Think Tank. We're in Indianapolis, regarded, I guess, by some as the most sports crazytown in the country, athletic capital, NCAA is com ing here, and so on and so forth. Could, between the two of you, before we get into an argument,could you try to sketch in what is going on in America? You have billionsof dollars of new arenas and new stadiums being built all over thecountry. So, Mark, do you want to start? MR. ROSENTRAUB: Well, you've had for the last five years areal rage. I mean, in some ways it was kicked off by the Baltimore Oriolesbuilding their facility, but it has picked up incredible steam. I mean,from New York to LA, from the Canadian Borde r to South Texas, there is virtually no state that is not engagedin a hundred million dollar capital construction program forprofessional sports. MR. WATTENBERG: Why is it happening? MR. ROSENTRAUB: Basically, the economics of the industrychanges. It's like any other business. It's no different from the mass media. The economics of professional sports has changed, and now the facilityis a source of revenue. For a long period of time, as you well know, the biggest source of revenue wastelevision. But now, luxury suites, club seating, fancy restaurants, nightclubs, museums, are all part of the sports complex. And if you don'thave an arena or a stadium that generates that kind of money, then you're quickly becoming a poor relative inMajor League sports. MR. HUDNUT: I think the thing that's driving it is the impulsein America to sports. People love sports. It's part of Americanculture, as Mark points out in his book, it's deep in our language. Youknow, you hit a home run, you strike out. You, yo u know, drop the ball with the bases loaded, or whatever. Andpeople are looking for simplistic solutions to difficult problems today, andsports provides that. There's a winner and a loser. And that then getsinto this whole business of the economics of it, and pretty soon you've got a real cottage industry going,and no mayor wants to be left out. MR. WATTENBERG: That's what I want to talk about, whether thiswhole thing helps cities or harms cities. That's really what we we'retrying to get at. MR. ROSENTRAUB: But let me give you two examples here inIndianapolis which is sort of doing sports right, as opposed to doing thewelfare system. When the lease was negotiated for this facility for theIndiana Pacers, there was a clause in the lease that says that if the Pacers ever leave the city, they're eithersold or they leave the city, the City of Indianapolis gets 50 percent ofthe value of the team. So, it is true that tax dollars went to buildthis facility, but there was an exchange. And you may say, well, look, that wasn't a good deal. We could havegotten a better deal. But, if the Indiana Pacers leave, and they go to Nashville, or they go to wherever they would end up, if the teamis worth $100 million -- MR. WATTENBERG: Who would determine that? It wouldn't have tobe sold, the team could leave and you'd have a fair market appraisal? MR. ROSENTRAUB: Exactly. And there are many, many firms thatdo that. And if the team was appraised at $100 million, then the City of Indianapolis gets a check for $50 million. That's anunprecedented deal which helped protect the taxpayers. And, i n that case, it's an investment. And you and I could -- MR. WATTENBERG: And it's enough to keep them here, typically. MR. ROSENTRAUB: Well, exactly. Because, if they leave, that'sa nice check. And, in fact, after Mayor Hudnut left, there was a groupthat wanted to buy the team, and the city had to think for a secondwhether it would be better to have the money or h ave the team. But at least that's an option that the city has. The second thing is, when we did the Dome here, that Dome istied to a convention center. And, as I've pointed out a lot of times, ifthe Indianapolis Colts left town, believe it or not, the City ofIndianapolis would make more money than if the Colts stay because of the revenue generated by the Dome. So, if you cantake a Dome, tie it to a convention center and it works out well, you canmake sports right. Now, that's real different from the welfare system elsewhere. MR. WATTENBERG: The Colts came here in the dead of night. They were spirited out of our neighboring City of Baltimore. MR. ROSENTRAUB: And that's where I'll attack our good friend. But I'll let my good friend go. MR. HUDNUT: Well, Baltimore lost the Colts. Indianapolisdidn't steal them. He was shopping his franchise, Mr. Irsay was, lookingaround Jacksonville, Phoenix, what-have-you. Finally ended up here, we negotiated the deal in broad daylight. And I ca lled up the mayor of Baltimore at the beginning of the Odyssey andsaid -- MR. WATTENBERG: Was that then Kurt Schmoke? MR. HUDNUT: No. That was William Donald Schaefer, who hasn'treally spoken to me since. And he said, fine, Bill, go ahead. But then,when we got them, he turned very petulant. But the point, I guess, isthat we built the stadium before we knew the Colts were going to be in it, and we tied it into the conventioncenter. And Mark is right, it's not just used 11 days a year for afootball game. According to the statistics right now, last year that place wasfilled with events 59.6 percent of the ti me. So, on a basis of 365 days, you know, you're talking 200 daysthat that stadium was being used for something. Not for sportsnecessarily, but square dances, religious conventions, tractor pulls, whatever. MR. WATTENBERG: So what's your problem? MR. ROSENTRAUB: Well, the problem is, professional sports is a monopoly. And when Indianapolis steals Baltimore's team, they'rein a sense feeding the beast. We've deregulated the airlines. We've deregulated telephones. We're deregulating electric power, and we're going to deregulate gas power. MR. WATTENBERG: And we deregulated players' salaries. MR. ROSENTRAUB: And we deregulated players' salaries, but wedon't deregulate the control that the NFL, Major League Baseball, theNHL, and the NBA have to say where teams will play and under what terms and conditions. And when an Indianapolis steals the Colts, and when a Nashville steals the Oilers, by giving unprecedented deals and unprecedented welfare, and each time theteam -- MR. WATTENBERG: When you say welfare, you're talking aboutcorporate and government welfare to teams, and owners, and consequently tothe players? MR. ROSENTRAUB: Exactly right. What I always try to telleverybody, the dollars are split, depending on the sport, roughly 52 percentto the players, 48 percent to the owners. So, when you give a tax dollarto a team, 52 cents goes to the players, mo re or less, and 48 cents goes to the owners. So, make no mistakeabout that when you provide those subsidies. What Indianapolis did,which I have chastised is, it started a process or continued a processthat began with LA and New York over the Dodgers . It continued it, which then brings us to St. Louis and Anaheimand the Rams. It brings us to what went on with Baltimore and theCleveland Browns. It brings us to what went on with Nashville and theHouston Oilers. And each time the ante gets ratch eted up, the welfare gets larger, the lower and middle incomeclasses lose more, and the economically privileged gain. MR. WATTENBERG: But old Hudnut gave welfare also, didn't he? I mean, he's making -- MR. ROSENTRAUB: Not as much, to be honest about it. MR. WATTENBERG: Not as much. I mean, that's what SteveGoldsmith says now, this new deal for the redoing of Market Square Arena. Hesays, well, I started out against it for all of these sort offree-market reasons, but we got a pretty good deal. But , in point of fact, he's also giving out some corporate welfare,or some government welfare. MR. HUDNUT: I think Mark makes a good point in his book, whichis that the economic impact, direct economic impact, of these franchise,these teams, is negligible, and it might even be a minus rather thanjust being a zero or a modest plus. The point is the indirect impact. MR. ROSENTRAUB: He's found religion. MR. WATTENBERG: No, no. MR. HUDNUT: The point is the indirect impact. The point isthe business that it generates that you can't quantify as aneconomist. The point is what it does to the spirit of the community. The pointis what it does to the image of the city. The poi nt is what it does for land use, because you usually are buildingthese things where there was nothing before. And, as old Mayor Daleyused to say, well, what's your program? If you don't like a Hoosier Domeor an RCA Dome over there on all that land t hat was empty before, what would you put there? MR. WATTENBERG: I think I'd put a stadium there. I know, Ihappen -- I mean -- MR. HUDNUT: Now see who's got religion. MR. WATTENBERG: That's right. No, no. I mean, I think BillHudnut, as far as I'm concerned, as I try to understand this, said the magicword, which is spirit. I mean, you know, as you all said, everybody,including the panelists here, loves sports, everybody in America. I have never visited a foreign countrywhere you get into a conversation, tell me what X, your country, is like. MR. HUDNUT: You've never been to a soccer game overseas? MR. WATTENBERG: No, no. And you always get this, well, youknow, Argentina, we're a sports crazy country. Australia, you know,this is really different about us, we're a sports crazy country. Theworld, human beings are sports crazy. Which is fine, I mean it's better than war, it's better than a lot of things. MR. HUDNUT: Exactly. MR. WATTENBERG: And, to build these -- to have this edificecomplex and build grand arenas so people, among other things, feel better, andsay we're important. Indianapolis, we're now in the Major Leagues,what's wrong with that? MR. ROSENTRAUB: I'm 100 percent with you. MR. HUDNUT: It's more than just feel good, though. MR. ROSENTRAUB: I just don't want it -- I don't want to do iton the backs of low and moderate income people. MR. HUDNUT: And I -- MR. ROSENTRAUB: Ben, this generates enough money. Wait asecond. This past week, we had Jerry Reinsdorf sign Phil Jackson to a $6million contract, and he's going to sign a contract with Michael Jordanfor between $36 and $40 million. And I'm going to tell you point blank, this one man, Jerry Reinsdorf, can paythose two men combined $46 million, and make a profit. MR. WATTENBERG: That's more than the three of us make in twoyears. MR. HUDNUT: Two of your best years. MR. ROSENTRAUB: If sports generates that much money, itdoesn't need our sales taxes, it doesn't need our property taxes. Governmentsneed to focus on what governments need to do, schools, infrastructure, environment, public safety. MR. HUDNUT: That's a typical egghead point of view. MR. ROSENTRAUB: Egghead? MR. HUDNUT: You academics always criticize sports, and theeconomics of sports. And, basically, I think you're right, Mark. MR. ROSENTRAUB: Listen, I've got five season tickets to thePacers. How could you criticize me? MR. HUDNUT: I've got two. MR. ROSENTRAUB: Yeah, but I paid for mine. MR. HUDNUT: I'm a life member. Let me say this about that, wedid a study in 1991, the Chamber commissioned it, Mark glosses over thispretty quickly in his book. And it said that for $164 million worth of investment here in Indianapolis in sports fa cilities, we had a return of $1.02 billion. Now, that's not a badreturn on your investment, compute it how you will, disagree with it howyou will. MR. WATTENBERG: You were just saying a minute ago -- you werejust saying a minute ago that it's not a good economic deal. I mean,you're arguing both side of this equation. And there's a new study outby the Brookings Institution that says these are bad deals. MR. HUDNUT: Well, as I said to Mark before the program began,it's lucky I read his book after we built the Dome Stadium, because wemight not have built it if I had read it before. But I think, inretrospect, it was not just the Dome Stadium by itsel f, it was the natatorium, the veladrome, these other facilitiesthat we built here in order to attract events, to hold the NCAA, to put ontheir Final Four, to put on the Pan-Am Games, and all the rest of it. But I think Mark makes a good point at the end of his book,which is that -- and they'll never do it -- but the mayors ought to gettogether and agree among themselves that none of us is going to subsidize a professional franchise. MR. WATTENBERG: Would that be a violation of the anti-trust? MR. HUDNUT: Probably. MR. WATTENBERG: Many of these arenas go into desolate,downtown, troubled, deteriorated neighborhoods, and they tend to, at least,in some measure, breathe some life back into it. And these are basketcases, frequently, economically, and they're -- MR. ROSENTRAUB: Right, I couldn't agree more, Ben. MR. HUDNUT: Like Camden Yards. MR. WATTENBERG: Well, you could agree more by saying, do it. MR. ROSENTRAUB: But I don't want to subsidize it intoexistence. Let me give you an example. MR. WATTENBERG: Well, why don't you want to? I mean, youcan't do it if you don't subsidize it. MR. ROSENTRAUB: That's not true, the market will work. Comeon, you've had good things built in downtown Washington. MR. WATTENBERG: But the market -- MR. HUDNUT: Well, these guys are so rich, they could buildthem themselves. MR. WATTENBERG: But the market wouldn't put it down there. MR. ROSENTRAUB: Yes, it would. MR. WATTENBERG: The market would put it out in Bloomington, or Arlington. MR. HUDNUT: No, because there's no synergy there. MR. ROSENTRAUB: And not only that, Ben, when you've got tosell luxury suites at $70,000 a pop, you've got to have clients to buy it. We're not in an era of sports economics, where you're going to make yourmoney by selling individual tickets to subur banite fans. You need big businesses that are going to lay down$70,000 for a luxury suite, and on top of that -- MR. WATTENBERG: And they call that a business expense. MR. HUDNUT: Right. MR. WATTENBERG: So that is taking additional tax dollars fromthis middle-class -- the federal mechanism, or the state income tax. MR. ROSENTRAUB: Just to keep the record straight, the $70,000is not deductible, the tickets are. But, that's because the IRS changed-- Congress changed the code on that. But, you are right. It is subsidization. But, my point is, to sell those lux ury suites, you've got to be where the businesses are. And thebusiness is downtown, that are going to buy those suites. MR. HUDNUT: Plus the restaurants and the entertainment. Whyis the Silver Dome moving back downtown? It's leaving Pontiac and goingback to downtown Detroit, because they discovered they cannot be isolatedout in a cornfield, particularly if it freez es over in the winter time, like it did when they had theSuperbowl there, and nobody could get into the place. MR. WATTENBERG: In Washington, Abe Polen is building adowntown arena for the hockey and the basketball franchises, and it's a privatedeal. MR. ROSENTRAUB: Exactly. There are plenty of examples we cango into. MR. HUDNUT: But, in Virginia, for the football -- I'm sorry,for the baseball they're looking at a $350 million price tag for abaseball stadium. They've got about six or eight sites. They haven'tselected one yet. They're going to fund it, and Mark says this is wrong in his book, with a lottery tax. MR. ROSENTRAUB: Well, let me give you an example, you'retalking about downtown. Nobody did downtown professional team sports biggerthan Cleveland, when they built the facility for the Cleveland Indians, Jacob's Field, when they built Gund Arena. Be autiful facilities, attracting probably between 5 and 6 millionpeople a day, in the city -- 5-6 million people a year, to events. In theCity of Cleveland, almost half the population still doesn't earn above the poverty level. This doesn't change the economy of a city. MR. WATTENBERG: And on that note, thank you both very much. And thank you. For Think Tank, I'm Ben Wattenberg. ANNOUNCER: We at Think Tank depend on your views to make ourshow better. Please send your questions and comments to: New RiverMedia, 1150 Seventeenth Street, Northwest, Washington, D.C. 20036; ore-mail us at thinktank@pbs.org. To learn more abou t Think Tank visit PBS On-line at www.pbs.org. And please let usknow where you watch Think Tank. This has been a production of BJW, Incorporated, in associationwith New River Media, which are solely responsible for its content. Think Tank is made possible by AMGEN, recipient of thePresidential National Medal of Technology. AMGEN, helping cancer patientsthrough cellular and molecular biology. Improving lives today andbringing hope for tomorrow. Additional funding is provided by the John M. Olin Foundation,the Lilly Endowment and the Lynde and Harry Bradley Foundation. Back to top  Think Tank is made possible by generous support from the Smith Richardson Foundation, the Bernard and Irene Schwartz Foundation, the Lynde and Harry Bradley Foundation, the John M. Olin Foundation, the Donner Canadian Foundation, the Dodge Jones Foundation, and Pfizer, Inc. ©Copyright Think Tank. All rights reserved. 
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