By Daniel J. McGraw

On January 28, Cuyahoga County Council voted to put a ballot measure on the May election to renew the county’s sin tax to pay for stadium maintenance for the next 20 years. In response, local businessman Alan Glazen organized a Facebook group to protest this measure which rapidly gained hundreds of fans and dozens of arguments about the pros and cons of this new renewal vote. It’s a complicated issue, as is anything involving Cleveland, sports, and money. But it can be broken down and better understood for those of us unsure what the hubbub is about or which way to vote.

The sin tax started in 1990, and Cuyahoga County smokers and drinkers have already paid about $350 million for the stadiums and arena for the Browns and Indians and Cavaliers. If voters approve a 20-year extension of the tax, another $260 million is estimated to go into the facilities for “major capital repairs.” The new measure would be technically a new tax, but also an extension of the existing tax that gets a nickel for every pack of cigarettes, about two cents for a bottle of beer and three dollars for every gallon of hard liquor sold in Cuyahoga County to pay for the three major sports facilities. I try not to get caught up in some of the emotional arguments for or against public financing for highly profitable professional sports teams. I am a sports fan—not as much as I used to be, and I think age is a factor there—and I keep up with my local teams. But there are basic economic facts in the world of sports that are important to understand when being asked to cast a vote.

[blocktext align=”left”]But teams and the government agencies could stop lying about why public money is needed. [/blocktext]First, I want to state that there is no getting out of the corporate welfare that is public financing for professional sports teams. The big leagues have always limited the number of teams they field, and have always told cities that they might lose their teams if they don’t help pay for them. Clevelanders know that better than anyone.

But teams and the government agencies could stop lying about why public money is needed. I am referring here to economic development studies that argue that taxes on booze and smokes multiply at exponential rates into jobs and sales and property tax increases that are directly tied to the sports teams and, thus, reduce our cost for city services. Buy a beer, the logic goes, and the stadiums become nicer, and that leads to more money in the city’s coffers, and that means fewer taxes Clevelanders will need to pay to fix potholes.

But the truth is—and this is repeated over and over again in economic studies done by reputed academics unaffiliated with the teams or leagues—the money spent by the public to subsidize sports facilities has minimal direct economic benefits for any region. About the same, as one economist told me some years ago, as three Wal-Marts. Nice little pieces in the economic pie, but certainly not worth hundreds of millions in public subsidies.

Why don’t they have much of an impact?  Let’s look at the economics of pro sports. Sports teams are generally profitable before they even sell a ticket, due to the national broadcast revenue and sports memorabilia trinkets sold by the league and distributed to the teams. Take the National Football League, for example. Next year, the NFL will get about $6 billion from its TV deals, meaning each team gets about $200 million. That is before selling a $7 beer and $4 hot dog.

So most of the money that comes to sports team is through ticket sales and TV deals. That money doesn’t get re-spent much in the locality in which they operate. Those revenues turn into player’s salaries and owners’ profits. And most players and owners are not buying forty ouncers at the local convenience store. That money is mostly going out of town.

So the teams are already profitable even before any one fan pays for a ticket at the gate. But they can be more profitable if they can maximize different streams of revenue that are not shared with the league. Those streams come from  local ads inside the stadium, concessions, corporate club seats and sponsorship, and local radio and TV rights. These profits the team gets to keep in whole.

So the deals they make with local stadiums, for which they do not have to pay to build or lease or maintain, are important to maximize revenue for already profitable businesses.

And this is where all teams’ supposed need for public financing for stadiums becomes very disingenuous. Why? Because their stated reasons for needing more public money are usually that 1) they benefit the city’s economy and 2) they help us have an even better time at the game. But neither is true.

Let’s start with “fan experience.” All three Cleveland teams, when supplying reasons why they need the millions for “major capital repairs,” cite the fact they need funds to upgrade their scoreboards. They say they need those upgrades—bigger, more pixels, HD wizardry—to give their fans a more wonderful time while they are cheering their team. The new buzzterm is “fan experience.”

[blocktext align=”right”]These new scoreboards are not about a better “fan experience;” they are getting more profits from advertising revenue they do not have to split with the league.[/blocktext]But these scoreboards are not primarily about “fan experience.” Their primary purpose is to increase local advertising revenues from spots that air on the scoreboards. This revenue, unlike the TV deals, is not shared with the other teams.

Take the example of the Dallas Cowboys stadium. That stadium now has a 60-yard wide video scoreboard hanging over the field. It cost $40 million. If you’ve never been there (I have), you have no concept on how unavoidable this monstrosity is. It is the equivalent of five thousand 52-inch HD TVs with 30 million light bulbs. So after you pay $100 to sit in a seat, you are compelled to watch commercials that Cowboy owner Jerry Jones sells to local and national businesses. Jones keeps all that money for himself.

And Jones doesn’t stop with having you watch ads while watching the game. The Cowboys also had Cisco Systems design a 3,000 screen HD TV network within the concourses and bathrooms and everywhere else they can think of that shows highlights and fantasy football stats and, of course, ads.

So when the Browns said they needed $30 million from the city recently to upgrade scoreboards (which the city gave them), that money will be used to generate even more money from advertisements.  And if the sin tax passes, there is nothing in the measure that requires them to spend that money on anything specific. And that could open up all sorts of doors for them to put in new ways to sell more ads in the stadiums.

For instance, some stadium designers say that in the future, there might a TV screen at every seat, with which you can order food and drink, watch highlights and, of course, see more ads. If any of the Cleveland teams decide to go that route, they could use the sin tax money for such an upgrade. They would not be obligated to ask the voters if this would be okay. And there would certainly be no provision for them to share new ad revenues from new scoreboards or seat screens with the public who paid for them.

So let’s be clear. These new scoreboards are not about a better “fan experience;” they are getting more profits from advertising revenue they do not have to split with the league.

But what about the revenue these teams generate? Representatives of the team argue that upgrades are small prices to pay for the economic gain teams bring to cities. Usually this is accompanied by a study done by a government agency that shows a huge economic boom that will come from the sports spending.

The media usually accepts those numbers, because hey, they came from a reputed economic consulting firm hired by the government. But numbers can be used to represent anything you want them to. And economic consultants and ad firms don’t keep getting business if they go against what their clients ask them to do.

Case in point. These studies often do not consider how much money would be spent if sport teams were not there. For example, if a person goes to see the Cleveland Browns and spends $100 on a ticket and food and drink for the day, the economic study will conclude that the $100 is new money being dropped into the economy out of nowhere. They don’t consider that the person might spend that same $100 on going to a new restaurant in Ohio City or new clothes at a Tremont boutique or a new HD TV purchase at Steelyard Commons, if there was not a pro sports team in town.

In simpler terms, they sell the idea that if you didn’t spend that $100 on the game, you would take that $100 and put it under your mattress and never spend it. In reality, spending for sports just moves funds from one business—maybe a locally owned one—and moves it into another one that spends its money outside of town.

When I lived in the Dallas/Fort Worth area, I reported a story on the economic impact predicted for the Super Bowl at Cowboys Stadium in 2011. The league lobbied for public money to stage the game. They said that the game would be responsible for 100,000 hotel rooms sold for the week, which meant, they said, 100,000 rooms for seven days at $200 a room. They estimated hotel spending (not including food or drink or anything else) at $140 million.

[blocktext align=”left”]They don’t consider that the person might spend that same $100 on going to a new restaurant in Ohio City or new clothes at a Tremont boutique or a new HD TV purchase at Steelyard Commons, if there was not a pro sports team in town.[/blocktext]It seemed way too high to me. So I dug more. I discovered that the average occupancy rate for hotels in the area for the last week in January was 80 percent. So if the Super Bowl wasn’t there, 80,000 hotel rooms would still be sold. That meant the real economic benefit from the Super Bowl would be $28 million, not  $140 million.

The Cleveland professional teams work this same math. They crank out multipliers that turn buying a $5 beer at a bar near Progressive Field before an Indians game into a $50 economic gain for the city. They do the same with player’s salaries, claiming the $5 million yearly salary a guy makes  pumps up the local economy by a multiple factor of three spent locally, when in reality the money goes into an annuity fund and pays for his mom’s house in Alabama.

So: now that we have broken down some of the myths and economics of pro sports,  how should we vote on this sin tax? My answer: the sports teams should tone down substantially the “fan experience” and economic vitality arguments. Yes, there is some economic impact, but it is small.

A better argument would be to ask taxpayers whether the intangible benefits of having a sports team are worthwhile. For instance, we pay for parks with tax money, but don’t think parks need to have a direct economic impact on the community to have value. And we don’t have to use the parks all the time to realize their value. Would we make the same argument for our teams?

Economist Andrew Zimbalist of Smith College, who is the country’s leading expert in sport economics, put it very succinctly in a 2009 interview:

“All of the independent, scholarly research on the issue of whether sports teams and facilities have a positive economic impact has come to the same conclusion: One should not anticipate that a team or a facility by itself will either increase employment or raise per capita income in a metropolitan area,” Zimbalist said.

“Cities spend millions of dollars to support a variety of cultural activities that are not expected to have positive economic effects, such as subsidizing a local symphony or maintaining a public park. Sports teams can have a powerful cultural or social impact on a community. If that effect is valued by the local residents, then they may well decide that some public dollars are appropriate. However, if the public or its political representatives are trying to make the case that a team or a facility by itself will be an important development tool, then the electorate should think twice before opening its collective wallet.”

I would suggest that teams sell their sin tax extension as an intangible benefit for living in this area. If they said, “You should give us millions and we will stay here to entertain you, and it keeps you in the high-end city club that has three professional sports teams and thus you aren’t like Charleston, West Virginia,” I would probably vote for the sin tax. If they tell me, “25,000 jobs will be generated and we need scoreboard upgrades for the ‘fan experience’ and we need this money to be more competitive on the field,” I will vote against it.

[blocktext align=”right”]A better argument would be to ask taxpayers whether the intangible benefits of having a sports team are worthwhile. [/blocktext]I suspect most voters will do the latter. Given declining population and job losses, people in Cuyahoga County aren’t in the mood to spend these days. (Plus the teams stink and have for a fairly long period of time. Nor does it help that we have a team owner who rotates his coaches annually and is about to be indicted by the feds for cheating his customers.)

Some suggest that the teams need to renegotiate their leases and pay annual rent for the facility, or maybe share some of the ad sales from the new scoreboards. Others suggest that the teams should buy their stadium for one dollar, and then take care of them on their own.

But I would suggest that both the team owners and the sports fans deal with each other with some honesty. Sports teams should admit that in this economy and at this time in Cleveland history, it is not good for anyone to have the public pay all the freight for the sports teams. And the public should realize that the sports market nationally is such that public spending on facilities is a given, and we are going to have to put some money into the pot.

At this point, I feel like I’m being asked to pay for something that I cannot see any value in. If someone can explain to me why these teams matter in an honest way, maybe I’m on board. But I don’t expect they will.

Daniel J. McGraw is a Lakewood freelance journalist and author.