January 18, 2016• Sports Industry• by Timothy ChanTo an extraterrestrial visitor versed in economics but unfamiliar with the feeling of being a fan, the business of the NFL must seem peculiar.  

Pools of ordinary citizens arguing over which group gets to subsidize the construction project of a multi-billionaire, so that they would then have the right to be charged exorbitant fees to watch the billionaire's collection of mercenary-athletes play a game.

ET never had a chance of understanding. It had never been an American football fan. The situation described is far from unique. Taxpayers find themselves responsible for an average of over $250 million in construction costs for every NFL stadium. After hidden costs and revenue projection shortfalls, cities can find themselves responsible for nearly 75% of a stadium's total cost.

With the NFL moving the Rams from St. Louis to Los Angeles, and the Super Bowl played in a few weeks at the new home of the San Francisco 49ers in Santa Clara, CA, there are new opportunities to examine the economic ramifications of the relationship between NFL teams and their host cities.

Big Game, Small City

Next month, over 75,000 fans will file into brand new Levi's Stadium in Santa Clara, CA for Super Bowl 50. While the competing teams have not yet been determined, the costs to Santa Clara taxpayers have. When the initial stadium proposal came to ballot in 2010, Santa Clara residents agreed that the city would contribute $114 million towards the construction of a new stadium.

This figure did not include tens of millions of dollars that the city also spent to relocate existing infrastructure. Since the measure came to ballot, the cost of the stadium has risen by $400 million, while the financial commitment by the San Francisco 49ers - the NFL team that the stadium was built for - has fallen by $200 million in favor of shifting responsibility to the city-council run Santa Clara Stadium Authority.

Despite these changes, the issue never came to ballot again and the Stadium Authority now finds itself responsible for over $900 million, with much of the financing using historically low short-term interest rates before the Fed rate hike and will require refinancing.

The optimistic revenue projections touted by backers of the original measure seem increasingly unlikely to be met. The 49ers have struggled and over 30% of previous season ticket holders declined renewing in part because of rising ticket costs and a stadium that is forty miles away from the 49ers namesake city of San Francisco.

Santa Clara now has a stadium that can seat 75,000 people – while the city has a population of just over 120,000. On a per-capita basis, each Santa Clara resident is responsible for just under a thousand dollars in public funds, not counting the near-billion dollar liability of the Santa Clara Stadium Authority.

Three hundred and fifty miles south along I-5, construction is underway on the new home of the once-again Los Angeles Rams. In a sharp break from the tradition of requesting public funding, Ram's owner Stan Kroenke is touting the over $2 billion dollar stadium and sports complex in Inglewood as completely private.

While investigation by the LA Times into the fine print of the deal revealed that the city could spend up to $100 million, the Inglewood project is largely unique in both scale and independence from public funding. Whether this is a watershed moment in American stadium funding or an outlier due to the unique circumstances surrounding the Rams' move back to L.A. remains questionable.

The only other NFL stadium built in the last two decades exclusively through private funding is MetLife Stadium in New Jersey, where both the New York Giants and New York Jets play. Not coincidentally, New York is the largest media market in the country. Los Angeles is the second largest.

Kroenke's building proposal pushed forward at a rapid pace and without a public ballot. In less than two months, Kroenke managed to move the project through both public unveiling and council approval. Kroenke's project came at great expense and against the clock, short-circuiting an existing plan by Dean Spanos of the Chargers and Mark Davis of the Raiders to build a joint stadium in nearby Carson.

Whether less competitive circumstances would have led Kroenke to leverage the Rams for public funding will never be known. Lest one be eager to call the Rams' move a clear win for L.A. fans and taxpayers, it is worth pointing out that there is consensus among most economists that cities experience little to no tangible economic growth through construction of sports stadiums alone.

In contrast to the negligible benefits to taxpayers, the previously mentioned 49ers experienced a nearly 70% increase in value due to their move from old Candlestick Park to new Levi Stadium. Considering the Rams are not only moving into a new stadium but also moving from a small media market to the second largest in the country, they would expect to experience even greater growth.

A City Scorned

To St. Louis, the days of the "Greatest Show on Turf" and the Lombardi trophy that it brought to the city less than two decades ago are long gone. After the city offered about $470 million in total public funding for a new waterfront stadium and spent over $16 million on a task force to develop the plan, Kroenke strong-armed his way out and spurned the city in a scorched-earth letter, calling St. Louis a "2-sport town" and stating that an NFL team there would be on the way to "financial ruin".

In losing the Rams, the city estimates it will lose approximately $15 million per year in tax revenue. Hundreds of full and part-time workers will also find themselves seeking new jobs. While the Edward Jones Dome – where the Rams previously played – is now going to be available for additional events during football season, maintenance costs in the aging facility expect to increase.

The city of St. Louis is a lover scorned and the Rams left it with the metaphorical dinner tab as well. The public still owes $129 million on the Edward Jones Dome. For perspective, in 2015 the Rams averaged 55,000 fans per game, paying an average of $70 each for a ticket. It would take these fans over four years of attending imaginary home games and watching an empty stadium to pay off the balance of public debt.

However, St. Louis is in better shape than it would have been if the Rams stayed. Had there been acceptance of the stadium proposal, public debt on the stadium would last for the next thirty years – long past the time when the "new" stadium would have been outdated. This debt would have run concurrent with the existing debt on the Edward Jones Dome.

The Winners and Losers Stay the Same

Regardless of which team hoists the Lombardi trophy in a few short weeks, every team is a winner when it comes to profits. Now entering the 10th year of his tenure as NFL commissioner, Roger Goodell has the league well on its way to the audacious goal he voiced in 2010 – tripling league revenues in 17 years.

While the teams all win, one cannot say the same for fans and taxpayers who share in the financial risks of billionaires without participating in profits. With the location of two teams – the Chargers and the Raiders – still in flux, the league's owners are poised to capitalize on their leverage once again.

While a formal proposal by Oakland to the Raiders has yet to be submitted, San Diego has already offered the Chargers $350 million in public funds.{jcomments on}

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