Sports Stadium Corporate Welfare Continues in Detroit

Despite the having filed for bankruptcy, Detroit is going ahead with plans to spend over $400 million in public funds on a new hockey arena for the Detroit Red Wings [HT: Josh Blackman]:

Detroit’s financial crisis hasn’t derailed the city’s plans to spend more than $400 million in Michigan taxpayer funds on a new hockey arena for the Red Wings.

Advocates of the arena say it’s the kind of economic development needed to attract both people and private investment dollars into downtown Detroit. It’s an argument that has convinced Michigan Gov. Rick Snyder and Kevyn Orr, the emergency manager he appointed to oversee the city’s finances, to stick with the plan. Orr said Detroit’s bankruptcy filing won’t halt the arena plans.

“I know there’s a lot of emotional concern about should we be spending the money,” said Orr. “But frankly that’s part of the economic development. We need jobs. If it is as productive as it’s supposed to be, that’s going to be a boon to the city.”

But critics say the project won’t have enough economic impact to justify the cost, and that it’s the wrong spending priority for a city facing dire economic conditions.

I’m a big hockey fan and even used to play myself (not that I was any good). And, unlike many other Detroit institutions, the Red Wings have been very successful in recent years. Nonetheless, this massive stadium subsidy is utterly indefensible. Studies by a wide range of economists have repeatedly shown that stadium subsidies do not yield economic benefits for the wider communities where they are located.This recent book by political scientist David Schultz has a helpful survey of the evidence. Moreover, this kind of corporate welfare for powerful business interests is exactly the sort of wasteful crony capitalism that played a major role in Detroit’s decline in the first place. If you’ve dug yourself into a deep hole, you’re unlikely to get out by digging even deeper.

In fairness, the subsidy given to the Red Wings isn’t nearly as large as that obtained by some sports teams elsewhere, such as the Miami Marlins and the New York Yankees. The latter don’t call themselves “baseball’s evil empire” for nothing. But a city in such dire financial straits is less able to afford extravagant corporate welfare than other jurisdictions.

UPDATE: It’s worth noting that wasteful public subsidies for sports stadiums are yet another example of the harmful consequences of political ignorance, of the kind discussed in my new book on that subject. In his book linked above, David Schultz argues that they are a result of ignorance among policymakers. But if the voters were more knowledgeable themselves, they would be able to elect more competent leaders, and also punish incumbents at the ballot box for funding wasteful projects. Good studies on the economic impact of sports stadium subsidies have been available for many years. But voters have mostly ignored the accumulated evidence, in large part for the understandable reason that political ignorance is rational, given the very low likelihood that any one vote will influence electoral outcomes.

UPDATE #2: This, from the CNN article linked above, is also worth noting:

Typically, a team threatens to move out of a city in order to get government officials to agree to a publicly financed new home, but the Red Wings have not made that threat.

Andrew Zimbalist, a Smith College economics professor and a sports business expert, said the Red Wings are one of the few profitable teams in the National Hockey League, and there is no chance they would want to leave Detroit, even for the suburbs.

Zimbalist is a leading sports economist.

UPDATE #3: This article describes criticisms of Detroit’s arena subsidy plan by sports economists who have studied it [HT: Brian Kalt].

Powered by WordPress. Designed by Woo Themes