Beware of numbers used to sell stadiums — and fight them

A recent Star Tribune op/ed by economist Kenneth Zapp critiques a Metropolitan Sports Facilities Commission-sponsored report that estimates tax revenue derived from local sports arenas. Zapp makes several points commonly raised by opponents of public financing of professional sports stadiums.

First, the report implies that tax revenue from sports facilities would not have been collected had they not been built. This is not true. Every economic study of stadiums has found that professional sports do not create economic value. If people do not have such games to attend, they spend their money on alternative forms of entertainment or events, which are also taxed.

He also notes the analysis does not take into account present value of the future cash flows from taxes and states that it's unfair for other entertainment-related businesses to pay taxes that help build a stadium for a competitor. But he overlooks income taxes in his summary of stadium revenue:

A stadium generates revenue from naming rights, concession rights, advertising, seat licenses, ticket taxes, parking taxes, souvenir and related NFL merchandise sales taxes, media access fees and facility use fees. The commission claims there are multiple uses for a covered venue besides sports; these activities should also pay their portion of the cost.

This is a significant omission, since according to the commission's report [Download Report.pdf], "Over one-half (57%), or $197,700,000, of the total estimated tax revenue is attributable to the personal income tax on professional sports organization payrolls" for the Twins, Vikings, Timberwolves and Wild between 1961 and 2006.

The study did not calculate taxes paid by visiting teams, who pay Minnesota income tax on a portion of the payroll representing the number of games played in Minnesota. I haven't found an estimate of that total, but considering that Minnesota teams have historically lower-than-average payrolls — it seems the out-of-state revenue could be considerable.

Let's assume there were no professional sports teams in Minnesota because we decided not to provide outsized public subsidies. While local entertainment dollars might indeed flow to other taxable entertainment activities and visiting performers, tax revenues would drop unless we changed tax laws.

Here's why.

Even without calculating the actual tax liabilities, visits by out-of-state professional athletes are likely more lucrative for the state, because they have income tax withheld from their game pay, while visiting entertainers pay a 2 percent tax on receipts. A major league baseball player earning an average $2.8 million a year makes $17,284 per game. The Twins play nine home games with in-division rivals, so on average, those teams would presumably pay about $155,000 per player, with the adjusted gross taxed at least at 7.05 percent.

Further, their income is not dependent on gate receipts. In part, it comes from media contracts and economic activity produced in other states. George Steinbrenner pays A-Rod the same to play here regardless of how many tickets we buy.

In our hypothetical world, we may divert our entertainment dollars to dining, concerts, movies and theater, but the overall tax revenue will undoubtedly be less because of the net loss of high-paid employment.

The total loss may not be large enough to matter, it still does not mean the public should subsidize professional sports teams. But it does show we should be cautious when viewing the economic arguments presented by either side.

— Charlie Quimby