A matter of days separated Detroit’s historic bankruptcy filing from the announcement that the city’s professional hockey franchise would soon have a brand new $450 million downtown arena. Well over half of the cost of building the venue will come from already captured property tax revenues, specifically property taxes paid by corporations, businesses and citizens residing within the downtown economic district managed by Detroit’s development booster, the Downtown Development Authority. The DDA will own the arena outright, and will lease it to Mike Ilitch, fast-food pizza impresario and owner of the hockey franchise that will call the arena home, rent free for 95 years. Also owned by the DDA will be lots adjacent to the arena, which have been earmarked for the anticipated influx of businesses that will accompany the development.
The new arena, while likely ornamented with state-of-the-art features, will have a seating capacity similar to that of Joe Louis Arena, the venue in which Ilitch’s Red Wings have played their home games since 1979. Yet while the city of Detroit currently benefits from Joe Louis Arena’s tenant, to the tune of 10 percent of ticket and concession sales as well as a percentage of revenues made from suite sales, souvenirs and parking, under the new agreement Ilitch will keep every penny made at the new venue, scheduled to be completed in 2017.
While apologists have been eager to point out that none of the public money being used to fund the sports arena comes from Detroit’s general fund and that the lion’s share of the property tax revenues in the DDA district came from major corporations like General Motors, Quicken Loans and Comerica Bank and not from individual taxpayers, the fact that Detroit is mired in an unprecedented financial crisis as these plans move forward is nothing less than a public relations black eye. The rationale behind the announcement of the deal and plans to move construction forward in the face of bankruptcy was that the project promised renewed economic prosperity in the downtown area from hockey fans eager to spend their money on Detroit Red Wings tickets and apparel and visit establishments that will relocate to the areas surrounding the new venue. That is, gotta spend money to make money.
It is true that Ilitch, through his Olympia Development Group, spent upwards of $50 million to buy out local businesses in order to make way for the project. This, along with the sanguine expectations the new arena’s champions have in terms of the economic upside once the project is completed should not be taken as evidence of altruism or civic pride. This was a grift, plain and simple.
Despite trends indicating that more businesses were moving to downtown areas as incentives increased for doing so, Ilitch, prior to approval of the deal, threatened to move the Red Wings to the suburbs if agreement could not be achieved for a venue in the city proper. The city caved and eventually awarded Olympia Development the rights to develop on 39 lots, lots many deemed “blighted,” for the dirt-cheap price of $1 title transfers. As for the old arena, Joe Louis, a stipulation in the new agreement prohibits the city from holding any ticketed events in the building once the new venue is completed. Detroit owns Joe Louis, which is, under the terms of non-competition, effectively a vacant eyesore beginning in 2017, and the city is on the hook for the costs of demolishing it.
The business renaissance angle has its problems, too. As Jerry Belanger, owner of the Park Bar in the downtown district, points out, it is his property taxes that are backing the development of his bar’s future competition, something that seems to go against the spirit of the free market. “[Illitch] can’t go toe-to-toe with me on a fair playing field,” Belanger told Deadspin earlier this year. “He can’t win without public money.”
While Detroit might be seen as a special case in that it is getting a new arena while it struggles to maintain basic public services due to the $18 billion budget shortfall that brought about the city’s filing for bankruptcy, that it succumbed to the strong-arm tactics of private developers and helped pay for a multimillion dollar project the city didn’t need is a costly mistake no major American city has avoided. Detroit is a paradigm case, if not a potential worst case, if the hockey arena, once completed, doesn’t live up to expectations. (That Detroit’s other two recently-built professional sports venues, Ford Field and Comerica Park, both failed to meet projections for a downtown rebirth makes this more of a “when” than an “if.”) Similar stories have played out all over the country.
The Guardian published an article today detailing the love affair Americans have with their sports teams, and with the economic mirages that bring ill-advised community support (either from the citizens at large or from the politicians and bureaucrats they voted into office) for the use of public funds to build effectively privately-owned coliseums. Today, a majority of professional sports stadiums are financed by a mixture of public and private money. Even those arenas that are built with mostly or all private contributions benefit directly from state- or municipally-funded infrastructure upgrades, bargain-basement land transfers and significant tax breaks (in fact, both the National Hockey League and the National Football League are tax-exempt organizations). The leverage often used by team owners is the possibility of moving the franchise elsewhere. No matter which side the financial seesaw is likely to ultimately fall, and it almost always falls on the side of sports franchise owners and developers, cities and their denizens pay big in order to keep a team local.
“It’s the backbone of the sports industry now,” said Neil deMause, one of the authors of a book investigating the crooked business of stadium construction in the U.S. “That’s how you make money. If you can get someone to build you a free stadium that generates revenue – which you usually keep 100 percent of…[i]t’s like the defence industry and the Pentagon.”
Benefits these projects have for the community get a lot of lip service prior to their approval, but most never materialize once the stadium is open for business. Developers and boosters describe reinvigorated local economies and the mushrooming of new businesses districts that will thrive in the shadow of the stadium.
Such “spin-off” growth tends to be woefully smaller than economic impact studies used to promote such projects suggest, with localities seeing 20 percent or less than forecasts. Though developers might account for this with the truism that hindsight is 20/20, these trends are determined before the first shovel hits the dirt.
Victor Matheson, a sports economist at College of the Holy Cross in Massachusetts, has a simpler explanation. “Teams aren’t in the business of making sure to generate a lot of money for the local bar across the street,” Matheson told the Guardian. “They’re in the business of selling you the $11 beer once you’re inside the stadium.” The promises owners and developers make to secure public approval and, more importantly, public financial backing, are forgotten once the projects are completed and as money spent by the public inside these venues flows almost indiscriminately into the bank accounts of owners and players. The benefits to the communities that helped build the stadiums remain, more often than not, negligible.
The solution to such lopsided dealings would seem to be legislation prohibiting the use of public funds in the building of sports stadiums. Here, Detroit is again the paradigm case. Such a measure passed in the city in 1992, and required that any proposed venue be funded by private funds alone. The ordinance was advocated by the Tiger Stadium Fan Club as an attempt to keep Detroit’s professional baseball team, the Tigers, in the iconic stadium it had played in since 1912. Detroit’s City Council repealed the ordinance in 1995. When enough signatures were collected to force a referendum on the measure in early 1996, developers spent hundreds of thousands of dollars in TV ads and mailers in order to defeat the measure. It was all theater anyway. Prior even to the ordinance’s 1995 repeal, the city and the state of Michigan had already agreed to help finance a new baseball stadium in the downtown district.