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The distorted economic promise of the Brewers' stadium deal
Commissioned studies alter the perception of economic impact of these stadium deals, trading policy-making for vibe-making.
The Recombobulation Area is a ten-time Milwaukee Press Club award-winning weekly opinion column and online publication written, edited and published by longtime Milwaukee journalist Dan Shafer. Learn more about it here.
This column is by Phil Rocco, associate professor of political science at Marquette University. Rocco is a regular contributor at The Recombobulation Area
“If they can get you asking the wrong questions,” novelist Thomas Pynchon once wrote, “they don’t have to worry about the answers.”
Over the last fifty years, the efforts of professional sports franchises to convert taxpayer dollars into private profits have hinged on getting elected officials, journalists, and other local opinion leaders to ask the wrong questions. How can we afford not to do everything in our power to keep the franchise here? How much economic output will the new stadium generate? What will happen to our city if the hometown team picks up stakes?
As Wisconsin state lawmakers appear poised this week to approve a package that includes $546 million in public financing to support renovations at American Family Field, the home of the Milwaukee Brewers, the debate over the stadium has continued to focus on questions that distract from the implications of this deal, which will go on the books as one of the largest in the history of Major League Baseball.
Garbage In, Policy Out
The public subsidy of professional sports facilities is a study in the art and craft of misdirection. For one thing, the debate over stadiums is frequently shaped by studies commissioned by local business coalitions rather than the academic literature on regional economics. The source of the studies that guide how policymakers think ends up mattering a great deal. As the most comprehensive reviews of the academic literature published to date illustrate, public investments in sports stadiums rarely if ever have the direct economic impacts their proponents suggest they do. And even when we factor in social benefits that result from so-called “quality-of-life externalities” and civic pride, note the authors of the most recent survey of this literature, “welfare improvements from hosting teams tend to fall well short of covering public outlays.”
The findings of studies like the one commissioned by the Milwaukee Metropolitan Association of Commerce (MMAC) back in 2020 reliably do not comport with decades of academic literature on the economic impact of stadium investments. Whereas academic economists find that sports stadiums result in marginal economic outputs, suggest that AmFam resulted in a whopping $2.5 billion in economic outputs and over 1,800 jobs in just a few decades.
The difference, however, can largely be attributed to the methods these studies use. The MMAC study, like many commissioned analyses, reports gross spending estimates which fail to account for “crowd out” effects of local economic activity. In other words, such studies fail to consider what economic activity might be possible were the site of the current stadium — and its acres of parking lots — used for some other commercial purposes.
The MMAC study also uses proprietary input-output models (like the IMPLAN model) which, it is argued, captures “development spillovers” in the local economy. Numerous studies suggest that these models exaggerate the multiplier effects from stadium investments in part because they fail to consider “revenue leakage” — especially high in professional sports — which tends to import a larger proportion of labor than other industries. Even when stadiums generate economic activity, it tends to slip out of a region in ways that commissioned studies fail to detect.
Just as commissioned studies tend to overstate the economic returns of bread and circuses, they also tend to understate the costs of public investments. Judith Grant Long, an expert on stadium subsidies at the University of Michigan, suggests that most publicly available cost estimates for stadiums are understated because they consider only direct development costs and fail to factor in annual expenses and foregone property taxes. In her landmark 2005 paper on the subject, Long found that the real value of the public subsidy for the Brewers stadium was more than 110% higher than the officially reported public subsidy.
Policy-Making as Vibe-Making
Yet, commissioned studies are not really designed to be scrutinized. Unlike academic papers, they never undergo peer review . Instead, the consultants who produce them gain credibility by dint of their roster of clients, who are routinely pleased with the product. The product “works” not because it informs, but because it placates policymakers and public audiences who lack either the expertise or the motivation necessary to question their assumptions. When doubts surface, it is easy enough to underwrite optimism with the argument that “things will just work differently here.” Regional economies are complex, after all, so why not roll the dice?
When all else fails, boosters and elected officials tend to rely on arguments that redound to the intangible — the indescribable qualitative vibe of being a Major League city, a World Class destination, a city’s that’s on the map, and the potential loss — not just in dollars or jobs, which can be quantified, but in civic identity or pride, which cannot. Once the threat of depleting these symbolic resources is invoked, the economic arguments — however sound — can be more easily drowned out, their proponents reduced to mere skunks at the tailgate.
But do elected officials actually believe the Panglossified nonsense that franchise owners and their allies try to sell them? Are they that easily led?
In the end, it doesn’t matter. In stadium fights, electeds face something akin to the wager of French philosopher Blaise Pascal. Encountering uncertainty over whether God exists, Pascal argued that it was safest to assume that God is real and that judgment awaits in the afterlife. Similarly, elected officials facing the threat of a major franchise’s exit often conclude that the safest way to live is by assuming that stadiums do have an economic impact and a judgment awaits at the next election if they do not behave accordingly. It doesn’t always pan out this way, of course. Public subsidies for stadiums are, generally speaking, not popular. But electeds with safe seats and low turnout elections are more likely to face punishment from powerful urban growth coalitions than they are from a mass of disorganized voters.
It’s all just this side of heaven for the Brewers franchise, whose valuation has tripled to $1.6 billion since the stadium was constructed. The stadium itself accounts for nearly a quarter of the team’s value. The deal they’ve wrenched out of the state will no doubt push them past the $2 billion mark.
The fundamental economic dynamic wrought by public investments in stadiums is not one development. It is instead that of redistribution, specifically upward redistribution from taxpayers to the billionaires who own the teams. As in so many other areas of American life, the rules are the same: socialize the costs, privatize the gains, and create governing arrangements — in this case a special district — that push decision-making authority further away from voters.
What’s in a Deal?
One of the hallmark elements of this governing arrangement is that, when the deck is stacked so heavily in favor of the owners, even modest changes from an unreasonable baseline in the deal can feel like a win — the result of what cognitive scientists call “anchoring effects.”
Witness the sharp turnaround last week when State Rep. Robert Brooks (R-Saukville) announced several amendments to the stadium bills (AB438, AB439) that would reduce the required combined contribution of the City and County of Milwaukee from $200 million to $135 million over the next 27 years.
While Brooks’ bill has been reported as a “scaling back” of the size of the package, the mechanics here are complicated. The amended legislation Brooks introduced, and which the Assembly will take up this week, does indeed reduce Milwaukee County’s total required payment from $135 million to $67.5 million.
For those keeping score, however, this is still more than twice the size of the County’s current budget surplus, and still amounts to a planning decision that will be imposed on the state’s most populous county without meaningful consideration of how to balance the scale of the investment with other pressing needs.
Where the City of Milwaukee is concerned, the amendment “reduces” required payments by diverting revenue that the city must already send to the state. Under Act 12, the shared revenue legislation that passed this summer, the City of Milwaukee was authorized to impose a 2% sales and use tax. The law directs the Wisconsin Department of Revenue to extract an administrative fee of 1.75% of the revenue collected by that tax. Any revenue collected in excess of what the DOR needs to administer the tax is then considered an “unencumbered balance.”
Brooks’ legislation requires that unencumbered balance to be deposited in a segregated fund managed exclusively by the Southeastern Wisconsin Professional Baseball Park District, the entity created to govern the stadium. When the amount deposited equals $67.5 million, then the administrative fee is reduced from 1.75% to 0.75% and any additional unencumbered balances go back to the general fund.
Taken together, these moves may well have the effect of making it less politically painful for Milwaukee’s mayor and county executive to support the deal. Yet the amendment includes a few additional ingredients that are aimed at pleasing skeptics and building a larger coalition.
One is a requirement that the stadium district study the feasibility of redeveloping the district, a bid to attract support from proponents of plans to create a “Beer District.” This is ultimately thin gruel. The Stadium District could easily prepare a report that summarily cans redevelopment proposals. And in any case, what matters here is arguably less the opinion of the board members themselves than the appetites of private developers, whose attitudes on redevelopment seem mixed at best.
A more consequential amendment to AB439 is a plan to reduce the administrative fee on sales and use tax revenue collected by the Department of Revenue from all counties. By lowering this fee from 1.75% to 0.75%, the Wisconsin Counties Association (WCA) estimates the legislation will collectively receive an additional $6 million in sales tax remittance annually. Unsurprisingly, WCA has come out strongly in favor of the legislation.
Such is the art of legislating. And it may well push the stadium deal across the finish line. The Brewers will remain in Milwaukee. The franchise’s value will increase. And maybe, if we’re lucky, we’ll see a better postseason or two.
But will the massive public subsidy of a private firm make us better off as a city, or will it just make the franchise owners richer? In 30 years, we may get a chance to revisit this question.
And by “we,” I mean very few of us indeed.
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Phil Rocco is an Associate Professor of Political Science at Marquette University, and a regular contributor at The Recombobulation Area.
He is the author of Obamacare Wars: Federalism, State Politics and the Affordable Care Act (University Press of Kansas, 2016) and editor of American Political Development and the Trump Presidency (University of Pennsylvania Press, 2020).
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This is one reason why economists have made a checklist policymakers and journalists might follow when reading them. See Robert W. Wassmer, Ryan S. Ong, and Geoffrey Propheter, “Suggestions for the needed standardization of determining the local economic impact of professional sports,” Economic Development Quarterly 30, no. 3 (2016): 252-266.