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Aug. 4, 2024 | By: Kevin Hardy and Allison Kite - Missouri Independent
By Kevin Hardy and Allison Kite - Missouri Independent
For decades, academic research has been clear: Taxpayers almost never get their money back on subsidized sports stadiums.
And yet, over and over again, U.S. cities and states find themselves locked in lopsided negotiations with beloved football, baseball and basketball teams, hoping to keep them from jumping to a new market.
In the newest bidding war, Kansas aims to spend hundreds of millions of dollars to lure the NFL’s Kansas City Chiefs or MLB’s Royals from their side-by-side stadiums in Missouri just a few miles away. It could be one of the most expensive stadium deals yet, according to Victor Matheson, a researcher who studies stadium subsidies.
“This is wildly destructive,” he said. “This is in some ways significantly worse than intercity competition, because you’re just spending billions of dollars to just move economic activity from one point in the metro area to another.”
Matheson, an economics professor at College of the Holy Cross in Massachusetts, watched closely in June as lawmakers in Topeka, Kansas, approved an expansion of an often-criticized tax incentive program with the aim of subsidizing a new stadium for one or both teams.
The bidding war for the teams is being viewed as particularly irresponsible by those who hailed a 2019 compact between Kansas and Missouri that some had hoped would set a new model for states across the country to curb corporate tax incentives.
Five years ago, the Democratic governor of Kansas and the Republican governor of Missouri celebrated an end to the so-called economic Border War, a long-standing practice in which governments would offer lucrative subsidies to lure companies back and forth across state lines in the Kansas City area. People saw the practice as wasteful, since it paid companies to relocate without spurring new growth for the regional economy.
The truce was momentous for Kansas and Missouri, two states whose rivalry traces back to bloody Civil War days. But it also garnered national acclaim from both liberals and conservatives who saw the move as a blow to corporate welfare and the cynical practice of companies pitting governments against each other.
But more powerful than the bipartisan cross-border cease-fire, apparently, is the allure of a new professional sports venue.
“Literally every piece of public policy that people said was bad before is being seen here,” said Kansas City, Missouri, Democratic Mayor Quinton Lucas.
Across the country, professional sports teams are playing various local and state governments against each other — a trend that will likely accelerate as a wave of existing stadium leases begin to expire across the country.
It’s a page from the pro sports playbook: Teams often threaten to move to other markets — one without an NFL or NBA franchise, for example. But when those efforts don’t work, team owners often seek to spark competition among local jurisdictions, Matheson said.
New Jersey officials are currently in talks with the owner of the Philadelphia 76ers to get that NBA franchise to hop over to Camden, New Jersey. And the NFL’s Washington Commanders, whose current stadium is in Maryland, are in talks with officials in Maryland, Virginia and the District of Columbia as they look to build a new facility.
“If there’s not a credible threat to relocate,” Matheson said, “the only way to really get the money out of people’s hands is to play localities against one another.”
Lucas said the bidding war between Kansas and Missouri — and local governments in each — gives more leverage to the Chiefs and Royals in negotiations. But it’s up to elected officials to keep from being outmatched.
“I do think some support is important,” Lucas said. “Giving away the farm is not.”
In Topeka, the GOP-controlled legislature expanded Kansas’ Sales Tax and Revenue Bond program, known as STAR, which would redirect sales tax generated at the stadiums and surrounding areas to pay off construction debt. If the teams were to hop the state line, they could benefit from an unprecedented level of taxpayer support: as much as 70% of the costs of two stadiums, which could amount to billions.
The law allows the state to strike stadium deals with little to no public involvement, doubles down on a state incentive program with a spotty track record of success and potentially puts the state’s finances at risk — all for the prospect of luring a sports team a few miles away.
“I do not like this. It feels gross,” Kansas state Rep. Jason Probst said during a caucus meeting of House Democrats in June. “This whole show that’s going on feels disgusting to me. And it’s still the right thing to do.”
In an interview, Probst, who is from Hutchinson in central Kansas, said the reality of professional sports requires governments “to play the game” and offer public assistance, lest they risk losing teams altogether.
“You can stand on your principles. … But if another state isn’t playing by the same set of rules you are, then they’re going to make that investment and they’re going to take that away,” he said.
On a hot summer day in 2019, hundreds of people gathered to celebrate an end to Missouri’s and Kansas’ practice of offering tax incentives to move companies and jobs from one state to the other.
By one estimate, the practice cost taxpayers more than $300 million over a decade and created almost no new jobs for the Kansas City metro area, which straddles both states.
“Sometimes common sense does prevail,” Missouri’s Republican Gov. Mike Parson said at the time. “Because you don’t have to be a scientist to figure out this was a bad deal for both states.”
Parson’s office did not respond to requests for comment for this story. But in July, the governor said he was confident the NFL team would stay put at Arrowhead Stadium in Missouri.
“I’m not too worried about Kansas at this point,” Parson said.
This spring, voters’ rejection of a 40-year sales tax to help finance a new Royals stadium — and upgrades for Arrowhead — sparked a fear that the teams might leave if they don’t get new facilities. Claiming voters in the Chiefs’ and Royals’ home county had “dropped the ball,” Republican leaders in Kansas pushed to offer the teams a deal, worried they could leave the region altogether.
That fear was enough to reignite the dormant competition between officials in the two states.
“And then they said, ‘Oh, but this is sports, that doesn’t count,’” Matheson said. “Bad economics with sports teams seems to have few boundaries.”
While some Missouri officials have criticized Kansas’ overtures to the teams, Kansas Democratic Gov. Laura Kelly said in June she made no promises about leaving the teams alone when she signed the Border War truce.
This week, Kelly’s office declined to comment on the legislation, referring questions to the Kansas Department of Commerce, which would oversee any stadium deals. That agency did not answer questions but provided a statement saying such projects “require discretion and confidentiality.”
“The department will not disclose any details regarding the activity surrounding negotiations or future agreements,” department spokesperson Patrick Lowry wrote in an email.
Missouri House Majority Leader Jonathan Patterson, a Republican from Lee’s Summit in suburban Kansas City, likewise said the truce wasn’t meant to cover sports teams — and he wants his state to keep the teams. He expects the state to respond with an offer of its own.
“The sports teams are sort of in a special category of their own. I don’t think that’s what that legislation really was meant for,” Patterson said of the truce.
Kansas’ offer to the Chiefs and Royals enhances an often-criticized program meant to bring major tourist attractions to the state.
But in most cases, the STAR bond program, according to a state audit, failed at its goal of increasing tourism. There may have been some cases, the audit said, where certain projects kept Kansans spending money in Kansas rather than going to Missouri.
“But we think it’s more often that local visitors simply move existing economic activity from one part of Kansas to another,” the audit said.
Prairiefire, a sprawling development in the Kansas suburb of Overland Park, defaulted on its STAR construction bonds earlier this year because sales tax revenues from its restaurants, movie theater and museum came in far below projections.
The proposal for the stadiums would allow the Chiefs or Royals to pay off construction loans using the increased sales and liquor tax collections at the stadium. In pushing for the legislation, lawmakers noted that the money for the stadium would come from spending in and around the stadiums, not general taxpayers.
And they claimed that bond investors would be on the hook — not the state — if sales tax collections come up short.
But Geoffrey Propheter, an associate professor in the School of Public Affairs at the University of Colorado Denver, said it’s unclear how interested investors will be in loaning huge sums for stadium projects, which typically do not create enough revenue to cover costs.
And if those state-issued bonds were ever at risk of failure, he said, lawmakers would feel implicit pressure to bail out the stadium.
“In the real world, there’s a huge risk to Kansas state taxpayers,” he said. “They’re going to have to decide to either bail out the project or do nothing. And if they do nothing, their credit, the state’s credit worthiness, will take a hit. And that will make all future borrowing more expensive.”
Experts viewed the Kansas-Missouri truce as a model that other states and cities could emulate.
“We were very interested in the Kansas and Missouri situation, because it gives a test as to whether this will work,” said Marc Joffe, a state policy analyst at the libertarian Cato Institute think tank. “And there have been some encouraging results since 2019 … but I think sports teams are just too big of a war, and they weren’t able to avoid the temptation.”
The institute is studying the Kansas-Missouri truce, in its larger effort to end bidding wars for factories and other major employers.
Joffe criticized such competition as wasteful, and said bidding for stadiums was no exception.
“It is at best a zero-sum game,” Joffe said, “and because of all the waste involved, it’s a really negative-sum game.”
Joffe pointed to the Coalition to Phase Out Corporate Tax Giveaways, a bipartisan group of state lawmakers that sponsored bills in more than a dozen legislatures between 2019 and 2021.
Pennsylvania state Rep. Christopher Rabb, a Democrat, has twice introduced legislation in Harrisburg to end corporate subsidies. He said he was motivated by Amazon’s 2018 announcement that it was seeking a new corporate headquarters, a move that set off a national bidding war among cities.
He broadly believes corporate incentives are wasteful, especially for professional sports teams. Rabb views the Philadelphia 76ers talks of moving across the Delaware River to New Jersey as a ploy for public subsidies.
He noted most average people can’t afford to attend pro games and likened chasing the purported economic benefits of stadiums and arenas to hunting for “fool’s gold.”
“How does this really change the collective quality of opportunity for regular Philadelphians? It doesn’t,” he said. “Let’s be honest: This is the sandbox of billionaires.”
Rabb said elected leaders should be focused on policies that help marginalized people, not the “excessively wealthy,” such as team owners.
After talks stalled over a new arena for the 76ers in Philadelphia, New Jersey Gov. Phil Murphy said he proposed the team relocate just a few miles to Camden.
Murphy’s office declined to comment, but the Democratic governor told a local television station last week that the team’s interest was “legitimate.”
“We think we got an angle here. We’re taking it seriously. Where it lands? I can’t promise you,” he said. “I think they are taking it seriously as well — we shall see. I say this as a Boston Celtics fan — don’t get mad at me.”
But this sort of jockeying between states only benefits team owners, said Neil deMause, a journalist who has written a book about stadium subsidies. Taxpayers and fans, he said, stand to gain little, especially if game tickets become more expensive at new facilities.
“All the economists I know say the best thing you could do is reject it for your state and have the stadiums get built in the other state,” deMause said. “You still get to go drive across the border and see the games the same way as you would otherwise … but you don’t have to pay for building the thing.”
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