Offering frequent news and analysis from the majestic Evergreen State and beyond, The Cascadia Advocate is the Northwest Progressive Institute's unconventional perspective on world, national, and local politics.

Saturday, December 17, 2005

Sports economics, a lesson in getting jobbed.

As much as I like sports, we have to stop getting mugged by these guys. The latest is the Sonics want a $20 to $200 million upgrade to Key Arena or they're going to have to take offers from other cities.

What's wrong with this picture? Sporting events are not public goods; and it's not right to support them with tax money. I don't care how many times we've done it. In Washington we already support our millionaire ballplayers in a very real way by not having an income tax. This puts us in the company of Florida and Texas among states with major sports. Since half the games are at home, that's a 3% to 6% advantage for our players. Don't think they aren't aware.

Plus, every new arena or upgrade is focused on fancy new luxury boxes, leased by companies who write off the pleasure on their taxes. The average fan can't even afford the parking, let alone a ticket. And don't talk about a beer and a hotdog. The media rights, the team apparel, through the roof.

But the "economic benefit" to the neighborhood of the venue must be worth the whole thing. Right? Well, No. That benefit is made of mist and it dries up under even the faintest light. Those restaurants in the area and the private parking lots may well get a bump, but it is borrowed from other areas where fans would have spent their money in the absence of the franchise.

A public good has two attributes, to a greater or lesser degree, that make it appropriate for tax financing. First, it is not depletable, and second, it is not excludable. A road, for example, is a public good. It is as good for the 100th car as for the first. Not depletable. A road is difficult to keep people from using. Not excludable. Not being depletable means the public good is often much more valuable than private goods. A golden goose. Not being excludable means you have to have different financing than pay-for-use, and the honor system doesn't work. Hence taxes, payments which are compulsory not because the good is worthless, but because if they weren't compulsory many people would not pay. The free rider, is the technical term.

An arena is most definitely excludable, and all the more so for the luxury boxes. It is also depletable on a per-show basis; a limited number of tickets can be sold.

So why are franchises so adept at getting public funding, even in the face of the hundreds of millions in salaries paid out each year for ballplayers? When an NBA player signs up for his multi-millions, he has the answer. "It's a business."

It is a business. A monopoly business. Franchise owners and players are busy splitting the take in one of the most egregious monopoly businesses in America.

We could analyze it at more length, but I hope there's no disputing it's a monopoly. Without a significant "market imperfection," you couldn't get $10 million a year to play a kids' game. If you aren't in the NBA, your pro team is nowhere. There is no alternative. Owners like it that way. It means their investments are no-lose situations. Don't listen to their whining about player salaries. Even a losing franchise can make back the investment, the entire loss in player salaries, and put a bunch in the pocket of the owner besides. Just sell it to the next city. It's value only goes up.

The problems for politicians in dealing with this issue are not small. The first one is basic ignorance. But that is only the first. Sports teams are owned by influential and monied people. The teams have an immense and easily manipulated fan base who will attack unwary politicians. I'm hopeful one or another of our leaders will take this opportunity of the Sonics to raise awareness. (I personally am not sure Howard Shultz, the majority owner of the Sonics and head of Starbucks, really wants the publicity of moving the franchise, but the initial noise is in the opposite direction.) The solution is not to get rid of the sports. We just need to regulate it like the monopoly it is. At its root it is a national problem.

Twenty million dollars -- the low end of the Sonics' plans -- would be a huge subsidy to home grown civic and cultural groups. Yet look at the public reception for a package of King County Council subsidies to local orchestras and community centers. It was only $3.5 million, and "cool" would be an understatement of its reception.

There is no end to the appetite of this particular beast, partly because of the power of sports in the national psyche and partly because the reward for winning it all is so enormous. (Make no mistake, there is fierce competition. Otherwise sane and sober human beings would not demand this sacrifice from a society which needs other, truly public goods much more desperately.)

It's only a game. We have to walk by homeless beggars to get inside. Pro sports were better when money wasn't the key to winning. Us real people are losing when we subsidize it because of its monopoly leverage.

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