Early Wednesday morning, City Councillors in Markham, Ontario, a suburb of Toronto with more than 300,000 residents, voted 7-6 against a motion that would have stopped a controversial plan to subsidize a $325 million hockey arena. The vote took place after a seven hour meeting, attended by more than 500 residents, many of whom spoke out against a financial framework that calls for the city to take out a considerable loan to fully finance construction.
Despite previous denials that the ultimate purpose of such a colossal project was to attract a National Hockey League franchise to the community, Paul Kelly, the former executive director of the NHL Players’ Association, made no attempt to further the charade during his address to the council.
It is true that if you build it, they will come. This is your opportunity, citizens of Markham. If you don’t act now and keep this project moving forward, you will likely never again have the opportunity to secure an NHL team.
While a pitch of this nature is more common to direct response television advertisements than city council meetings, those who support the project point to an unprecedented cost-sharing arrangement with GTA Sports and Entertainment and its financial backer, Remington Group, which under the current proposal, would take responsibility for paying back half of the city’s $325 million loan over the next two decades. In addition, Global Spectrum, the proposed arena operator, has promised to cover the cost of any operating losses.
Critics of the ambitious project mention the long list of subsidized arenas and stadiums across North America – from the Jobing.com Arena in Glendale, Arizona to Marlins Park in Miami, Florida – that have resulted in far more harm than good for taxpayers. They also note the lack of private investors lining up to back the project, and point to the sordid past of Graeme Roustan, the head of GTA Sports and Entertainment, who is currently appealing a Texas court decision convicting him of statutory fraud for an arena deal in 2009.
While any of these factors should cause considerable consternation for a municipality one stop closer to approving a massive expenditure, there’s something obvious being completely overlooked in this debate. There exists the faulty notion that building an arena in a suburban city is the equivalent of a railroad station coming to a trading post in the Wild West. However, Markham is not the American Frontier, and an NHL franchise, even if it does come to town, isn’t the Pony Express.
Professional sports teams aren’t anywhere close to the type of big business that we suppose.
Manchester United – the most valuable franchise in professional sports – was recently appraised by Forbes to be worth $3.3 billion. To the average person, that is an astronomical figure. Earlier this week, the Montreal Canadiens announced that they had signed restricted free agent defenceman P.K. Subban to a two-year contract worth $5.75 million. Most considered this a great amount of money, even if it represents an underpay for the unique skills that Subban offers. The Red Devils are worth 574 times more than the $5.75 million that the Canadiens agreed to pay Subban. Even when compared to other sports franchises Manchester United’s worth is immense. The next closest franchise, the Dallas Cowboys, are judged to be worth a paltry $2.1 billion.
However, from the perspective of businesses outside of the professional sports sphere, Manchester United would only be considered a big fish in its own small pond. When we judge the soccer team relative to other publicly traded companies, a $3.3 billion valuation doesn’t seem so daunting. There are thousands and thousands of bigger businesses – much bigger businesses – in the world.
In terms of a professional sports team closer in proximity to Markham, we could look at the NHL’s Toronto Maples Leafs, appraised by Forbes to be the most valuable hockey team in the world with an estimated worth of $1 billion. In his column from January 24th, Globe and Mail writer Derek Decloet looked at the Maple Leafs strictly in financial terms.
Let’s pretend that Hogtown’s unlovable losers were a public company. They’d rank about 200th on the Toronto bourse, alongside such household names as engineering firm Genivar Inc. and Secure Energy Services Inc. Big business? The Leafs are decidedly small cap.
This is the well-established Toronto Maple Leafs that Decloet is describing. Markham is hoping to build an arena that will – fingers crossed – attract a second franchise to the same region. One can only imagine such a valuation compared to Genivar or Secure Energy Services.
So, if professional sports franchises are such small potatoes in terms of business, what of the promises that typically accompany subsidy proposals guaranteeing improved economic development, increased job creation and large income growth for the region?
Dennis Coates and Brad Humphreys, in their 2008 paper Do Economists Reach A Conclusion On Subsidies For Sports Franchises, Stadiums, and Mega-Events?, tell us that the use of subsidies for professional sports franchises represents one of the few subjects in which economists are of one mind.
In a 2005 survey of a random sample of American Economic Association members, Robert Whaples (2006) asked of agreement with the following:
Local and state governments in the U.S. should eliminate subsidies to professional sports franchises.
Possible responses were “Strongly Disagree,” “Disagree,” “Neutral,” “Agree,” and “Strongly Agree.” Figure 1 shows that 58 percent strongly agreed, and 28 percent agreed. About 10 percent were “neutral.” Only 5 percent disagreed. Sports subsidies was but one of about 20 policy issues included in the survey, but Whaples highlights this issue as one of exceptional consensus.
Obviously, merely citing the consensus of economists isn’t proof of anything, but the paper, which offers a scathing rebuke to the promise of an economic benefit from subsidizing a professional sports stadium, goes on to offer pages of amalgamated research that supports the collective stance of the economists surveyed. The findings are definitive.
New stadiums, or in this case, arenas, generate little in the way of new spending. The money that is spent in the region of the newly built arena is tracked back to being money that would have been spent on other entertainment options. If anything, spending is merely redistributed toward the location of the arena, when the entire region’s taxpayers are expected to pick up the tab.
Meanwhile, the savings for the professional sports franchise that doesn’t have to build an arena on its own isn’t redistributed directly into the region’s economy. The largest portion of a team’s operating cost is in player’s salaries. Players don’t typically live in the region in which they play, and so their spending, or reinvesting, back into the region is limited, and in fact, more often than not spent elsewhere.
Making matters especially difficult to understand in the specific case of Markham is that the existing financial framework of the project includes plans to speed up the paying off the debt being assumed by the city though a controversial levy placed on local developers. This will only serve to further limit the development that the new arena is supposed to be encouraging. Even an economist at the University of Alberta who was commissioned by the city to find the economic benefits of building an arena in Markham reported nothing positive beyond the potential for increased civic pride.
Decolet, in the conclusion of his piece in the Globe and Mail, sums up the situation, as thus:
Despite all the evidence that pro sports are financially insignificant, team owners still manage to bully the public for stadium subsidies, claiming phantom “economic spinoffs.” Politicians fall for it only because sports are potential vote-getters. They know the truth. If professional sports mattered to the economy, they would never allow a 113-day NHL lockout. They’d intervene. Instead, the politicians wag their fingers at greedy owners and players – tsk, tsk, boys – and then turn their attention to something that actually counts.
While Decolet might be a bit assumptive – and given the earnestness with which Markham Mayor Frank Scarpitti advocates for a “downtown” arena, perhaps lending municipal politicians an unrealistic measure of awareness – his explanation of motivation at least offers a realistic reason why mountains of evidence are being ignored in Markham, in favor of pursuing such an obvious albatross.
Come to think of it, the idea of a National Hockey League team playing out of a fully subsidized suburban arena is so evidently irresponsible that the Albatrosses might prove to be an appropriate nickname if such a franchise is ever allowed to exist in Markham.