The old Giants Stadium was demolished this spring. The New York Times reports all that remains is a parking lot carrying $110 million in debt. This Sunday, the New York Giants will play their first game of the season in the new stadium, while New Jersey taxpayers will continue to pay the remaining principal and interest on $266 million in bonds issued to finance the original (1976) Meadowlands Sports Complex.
What went wrong? As the NYT notes, in the beginning the Meadowlands was successful. But by the 1980s, interest in horse racing started to decline. The NJ Devils and the Nets went to Newark. Revenues fell. Instead of responding to these signals the New Jersey Sports and Exposition Authority expanded operations.
The hypnotic fascination that sporting and entertainment facilities hold over local politicians dates to the 1960s and is a universal phenomenon. (The Olympic Games are a prime example, as is The World Cup). During this period, the definition of infrastructure changed to include not just roads and bridges but also stadiums and convention centers. Keynesian economic theories held sway. The idea that publicly financed sporting facilities would reap economic benefits for host cities continues to be the leading rationale for public investment in what should be privately financed ventures.
Economist Stefan Szymanski writes in his book, Playbooks and Checkbooks, “in recent years [major league sports franchises in the U.S.] have found a way to exploit their monopoly power.”During the early years of professional sports, team owners would build their own stadiums. With a shortage of major league teams, owners discovered they didn’t have to foot the bill, cities would gladly bid for the privilege. He estimates that over the last 20 years more than 60 publicly financed stadiums and arenas have been built in the U.S. totaling $20 billion. All a team must do is hint at leaving town to “extort a subsidy from the incumbent city.”
The problem is once the thrill is gone and attendance drops off the taxpayer is stuck with decades of debt. This “honeymoon effect” is well-understood. But even when put on ballot referendums in many cases voters still O.K. stadium debt. That may change in the near term with cities and states desperate to close budget deficits. Another good sign: the Jets and the Giants financed the new stadium, one of the most expensive ever built at $1.6 billion. It’s probably not enough to convince politicians that they should stop committing the public purse to subsidizing ventures that are purely private goods.