The Risky Gamble of Public Stadium Financing

The steady stream of proposals for new and renovated sports stadiums across the country, often with significant public financing, has raised concerns about the potential financial and economic risks for local governments. Moody's, a leading credit rating agency, has warned that these investments may not deliver the anticipated benefits, potentially leaving cities, states, and counties saddled with debt and economic consequences for years to come.

Taxpayers Foot the Bill for Wealthy Team Owners

The Growing Trend of Public Stadium Financing

The number of state and local government-supported stadium facilities reached a 17-year high in 2023, with high-profile projects like the redevelopment of Tropicana Field in St. Petersburg, Florida, the renovation of Everbank Stadium in Jacksonville, Florida, and the expected plans for a new lakefront stadium for the Chicago Bears on Museum Campus, as well as a stadium for the Cleveland Browns. These projects, which often involve some degree of public financing, have sparked a larger debate around the use of taxpayer funds to subsidize the interests of wealthy team owners.

The Risks of Public Financing

Historically, many investments in stadiums have not provided the net economic or financial benefits that governments expected, according to the Moody's report. The growing support of stadium projects with substantial public dollars raises the specter of an adverse financial outcome without the anticipated economic benefit. The risks of state and local governments issuing tax-exempt bonds to subsidize these massive city projects have been criticized by academics and economists, but cities and states are often eager to finance such projects in order to keep high-profile teams and capitalize on the potential for economic growth and job creation.

The Cautionary Tale of the Oakland Coliseum

The case of the Oakland Coliseum serves as a cautionary tale. The stadium, which underwent a 0 million renovation funded by general fund lease revenue bonds jointly issued by the city of Oakland and Alameda County, ultimately lost the Raiders in 2020. The county was forced to sell its 50% share of the stadium to the Oakland Athletics, and the city was forced to sell its 50% stake to a development group. Despite the significant operating subsidy, the city and county were unable to retain the Raiders, highlighting the potential for financial and economic risks associated with public stadium financing.

The Elusive Promise of Economic Benefits

Moody's warns that the real risk lies in the expected financial and economic benefits failing to materialize after a government has extended financial support to a project. If a stadium is subsidized with the expectation of generating tax revenue from sales within or around the stadium, or that additional economic growth will take place, and none of that occurs, the government is left to bear the burden. Additionally, if a state or local government begins to cover additional project or stadium expenses that impact its own operating flexibility, that would be a notable credit risk.

The Leagues' Lobbying Efforts

The leagues themselves have been actively lobbying to preserve the tax-exemption for municipal bonds, which is a crucial provision for the muni industry. The National Football League, for example, spent more than .3 million on federal lobbying in 2022, and during the 2024 NFL Draft in Detroit, the league hosted a dozen Congressional aides, underscoring the industry's efforts to maintain this lucrative financing mechanism.

The Evolving Approach to Stadium Development

While some stadium projects are now being integrated into larger development plans, such as the .5 billion SoFi Stadium in Los Angeles, which is part of the 298-acre Hollywood Park complex, the potential economic benefits of these newer projects may still take time to materialize. Moody's notes that the growth in taxable bases and subsequent collection of property tax revenue, as well as the growth in sales tax revenue, will lag behind the launch of these projects. As a result, Moody's views large stadium bond issuances as credit neutral, at best, at the time of issuance.In conclusion, the growing trend of public financing for sports stadiums raises significant concerns about the potential financial and economic risks for local governments. While some teams and leagues have attempted to mitigate these risks through more comprehensive development plans, the reality is that the promised benefits often fail to materialize, leaving taxpayers to shoulder the burden. As cities and states continue to grapple with these decisions, it is crucial that they carefully weigh the potential costs and benefits to ensure that public funds are being used responsibly and in the best interests of their communities.