The average American taxpayer may not realize it, but their dollars go toward funding the sports teams owned by billionaires.
Taxpayer support of sports “is a complicated question,” Smith College economist Andrew Zimbalist said in a phone call. “City governments, county governments, state governments spend all sorts of money on finding ways to entertain people and getting them to do healthy things … [and] promote entertainment in order to promote some spirit of taking care of yourself and good health and in order to promote some sense of community. And sports teams provide all of that, or at least some of that.”
The biggest debates around tax policies for pro sports teams often reflect that—unlike with many municipal efforts, such as sports fields, parks and bike paths —a private party owns these sports teams. “Should we be supporting billionaires with public money?” Zimbalist said. “The argument becomes more complicated, in my view, in that a good part of the public subsidies that we see in the United States you don’t see elsewhere in the world.”
Taxpayer support of sports isn’t inherently bad: Fair and thoughtful financial deals between cities and teams can result in situations where the public sees a return on their investment. And in many cases, voters themselves can decide if they value a team’s presence in their neighborhood enough to pay for it through higher taxes and foregone social services. Or not: in April, Kansas City, Mo., voters rejected a proposal to extend sales taxes to support stadiums for the Royals and Chiefs.
“On a conceptual level, I would say some of the subsidies are reasonable and they make sense and some of them are not reasonable,” Zimbalist said.
So how do American taxpayers support pro and collegiate sports? You may be surprised at some of the ways.
Public funds pay for stadium construction
The most public and most often-criticized way that taxpayers support privately owned sports teams is by sending public funds directly toward the construction of stadiums and arenas. Since 2020, taxpayers have paid $750 million of $3.3 billion in stadium construction nationwide, according to Journal of Policy Analysis and Management. And more is coming: Since the start of 2023, the NFL’s Buffalo Bills, Tennessee Titans and Baltimore Ravens have secured commitments of $2.6 billion in public money to build or renovate their stadiums.
Governments often contribute by splitting the cost of construction with the teams. The argument for doing so is that building a facility generates downstream tax revenue from ticket sales, taxes on hotels from visitors and even taxes on visiting player salaries in states where there is a personal income tax. The argument against is that tax money would be better utilized for efforts that have a longer-term return on investment to society–such as funding schools and maintaining bridges and roads–while sports stadiums typically sit unused when their pro tenant isn’t playing.
Municipal bonds pay for stadium construction
A more complex way taxpayers support pro sports team is through use of municipal bonds to fund the construction of stadiums. Even when teams pay the cost of the bonds and interest, it costs taxpayers money.
Municipal bonds are bonds issued by governmental authorities, the interest on which are typically exempt from taxes for the buyers. Because the buyers of munis—usually investment funds or wealthy individuals—don’t get taxed on their earnings from the bonds, it means the federal government missed out on $4.3 billion in tax revenue related to stadiums from 2000 through 2019, according to Governing.
Also, indirectly, muni bonds sold for stadium funding increase the government’s total debt level . It potentially caps how much money they can raise for other purposes or raises the cost to issue bonds for other projects, because of higher interest rates that may be needed to entice investors to buy yet more bonds.
Taxpayers pay increased sales taxes to fund facilities
One of the ways taxpayers pay for stadiums is through a tax on goods or services of some sort. Often they are small—a fraction of a penny per dollar—and levied on things only out-of-towners usually need, such as hotel rooms and rental cars.
For example, Clark County in Nevada, which issued muni bonds to build Las Vegas’ Allegiant Stadium, supports the bonds with a 0.88 percent tax on hotel rooms. Theoretically, such revenue-backed bonds should mean the stadium stands or fails on the cash flows backing it. However, bond market participants widely expect governments to step up when all else fails and use their general power of taxation to pay the bonds. The risk of ever having to do so is small, but it’s a risk taxpayers take. Twice, Clark County had to tap a debt reserve to pay the Allegiant Stadium bonds during the pandemic. The debt on Allegiant itself is equal to 1.1% of all the property values in Clark County, a level considered high enough that California prohibits its towns from accumulating so much debt-to-property value.
NIL collectives receive tax deductions
Before NIL, when college sports boosters gave money to athletes in the age of amateurism, it was hush-hush cash under the table. Now, boosters form NIL collectives, openly raise money with the intent of paying players and get a tax deduction for it.
Tax deductions for one person or group ultimately mean the federal government has to make up that deduction by taxing something—or someone else more. According to Patrick Rourke, a Washington, D.C., accountant who posts to his website NIL-NCAA.com, the collective NIL funding of the Power 5 conferences is $677 million. If all of that was funneled through a non-profit collective and taken as a charitable gift deduction on the donors’ tax returns, that’s around $200 million in tax revenue the government has missed on.
This loophole may not exist for long: The IRS is skeptical of NIL collectives, believing there is no charitable purpose to justify a deduction, according to the law firm Alston & Bird, which wrote about a 2023 IRS memo which noted paying athletes doesn’t serve a public purpose as defined by the tax code.
Owners write off increases in team values
This isn’t directly taxpayers dollars supporting sports teams, but more of a loophole benefiting billionaire owners. If there is one certainty in the North American sports world over the past three decades, it’s that professional sports franchises only get more valuable. The average value of an NFL franchise Is $5.14 billion, the most of the major sports leagues. But even down-at-the-heels franchises are worth more than ever. The NHL just paid $1 billion to buy its struggling Phoenix franchise and move it to Utah —that’s more than double the $425 million the selling owner paid for the club in mid-2019.
Looking at owners’ tax returns, however, it appears that sports team values are falling, and the reason is because of amortization. Let’s step back to explain: The tax code allows businesses to account for the deterioration of their equipment—trucks break down, machinery becomes less efficient and wears out, factories become less valuable from age, etc. For physical property, businesses get to write off depreciation over many years, the length of which varies by type.
Amortization is the same thing as depreciation, just for intangible assets. In sports’ case, owners claim the intangible asset is nearly the whole value of the franchise (a small portion is the physical assets the team owns, such as the arena’s seats and the team’s gear). Team owners get to use a portion of the value they paid for their team to offset income elsewhere through amortization. If one year’s amortization is higher than income, the balance gets carried forward to offset income in future years.
One team owner, speaking not for attribution, said amortization is like the government paying for a third of his franchise. Said Zimbalist: “Unless the intention is to bolster the prices of sports franchises, which I don’t think it should be, it’s hard to think of a rationalization that created this.”
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