How Cities Fell Out of Love With Sports Stadiums

Major league teams used to get everything they wanted from sports-mad cities. Now they have to fight for it -- and increasingly, they’re losing.
by | May 2018
(AP)

St. Louis is used to getting stood up by football teams. The city has been home to four different franchises, and all of them have left town. But the last two departures -- and especially the loss of the Rams to Los Angeles in 2016 -- have been gut-wrenching experiences that seem to have broken much of the city’s storied enthusiasm for sports.

In 1987, St. Louis’ NFL team, the Cardinals, skipped town abruptly. Tired of the old Busch Memorial Stadium and increasingly indifferent fans, the team packed up after 27 years and headed for Arizona. The loss was a bitter one for St. Louis. But the city went after another NFL team with zeal. In the early 1990s, local officials had little trouble winning approval of a new downtown stadium funded entirely with taxpayer dollars. The city failed to win one of two NFL expansion teams awarded in 1993, but eventually it lured the Los Angeles Rams, who had their own problems with an ancient facility and a waning fan base. By 1995, the Rams were kicking off in downtown St. Louis.

It was a time when other cities were making similar choices. The Maryland Stadium Authority built a new publicly funded football stadium in 1998 as a prize for the NFL team it had stolen away from Cleveland two years earlier. Cleveland, in response, built a taxpayer-funded stadium and won back an NFL franchise in 1999.

In those days, many local leaders assumed that the prestige and income of a major league team would not only boost tax revenue, but would also spark a revival in nearby neighborhoods. Economic impact reports -- generally commissioned by the cities and by business communities already bent on getting a team -- enthusiastically promoted this idea by promising a job windfall as a reward for the expensive civic down payment.

St. Louis bought into that argument wholeheartedly and found out the hard way that these deals aren’t as good as they seem. In its desperation to win a team, the city agreed to a contract that, among other things, required the dome to rank in the top 25 percent of NFL stadiums. Although the contract was vague on what exactly defined “top tier,” it listed locker rooms, scoreboards, concessions facilities and other fan amenities as being subject to the requirement. But thanks in part to an ownership that was lax in enforcing all the provisions of that maintenance contract, the dome fell out of its top-tier status. The city would have to pay a hefty bill -- by most estimates, more than what it cost to build the stadium in the first place -- to restore the first-class standard. That became a problem when a new owner, Stan Kroenke, took over in 2010.

Whether or not Kroenke ever intended to keep the Rams in St. Louis is a debate that will rage in local bars for years to come. But one thing is certain: By the 2010s, the city’s stadium infatuation had disappeared. In the early 1990s, St. Louis warded off a relocation threat from its National Hockey League team by paying to build a new downtown arena. Then, in the 2000s, the city’s baseball team, the Cardinals, still playing in the old Busch Memorial Stadium, asked for help in building a new downtown ballpark in the shadow of the Gateway Arch. Although the ballpark was primarily financed with private money, the city helped with the cost by relinquishing to the team revenue from a ticket tax that most estimates say will amount to $350 million over 30 years. St. Louis County also provided a $45 million long-term loan.

So when Kroenke came along and had the gall to start making demands for a football team that hadn’t had a winning record since 2003, the city was -- quite literally -- spent. St. Louis was suffering under the same socioeconomic and fiscal pressures as Cleveland, Detroit and most other Rust Belt cities. Its population was declining rapidly, and it was stuck paying off debt for the existing stadium until 2022. Residents were increasingly skeptical when it came to investing in gaudy entertainment amenities the lower-income population couldn’t afford to use. Understandably, officials resisted, kicking off a legal battle over what investments were necessary to bring the dome back into compliance with the original contract. An arbiter sided with the Rams in 2013, but the city’s convention authority still refused to pay. As a result, the team began operating on a flimsy one-year lease in 2015.

By this time, Kroenke, a Missouri native and real estate billionaire whose sports properties also included three major league franchises in Denver, had his own ideas. In 2014, he purchased 60 acres in Los Angeles County and began developing plans for a billion-dollar stadium on the site. St. Louis didn’t want to go down without a fight. But the opposition to any deal was fierce; taxpayer-subsidized stadiums had come to be viewed as presents for billionaire owners who could afford to buy what they wanted with their own money. Despite that and worries about affordability, city and state officials still managed to come up with a plan to build a 64,000-seat downtown football stadium. The final offer in the fall of 2015 was a riverfront stadium at a cost of just under $1 billion. Half the money would come from public funds, with the city’s share at $150 million.

Those involved thought they were making an offer that stood a chance. But Kroenke didn’t bite. Not long after he skipped town with the Rams in early 2016, then-Gov. Jay Nixon chastised the NFL for “making up reasons” to allow the team to move to Los Angeles.

St. Louis had given away more than most cities when it came to sports, and was left holding the bag yet again. “It left a sour taste in people’s mouths,” says Mayor Lyda Krewson. And the experience soon influenced the city’s dealings with its other sports teams. Shortly after the Rams left, the NHL Blues said the 23-year-old city-owned arena they played in needed upgrades. This time, getting that money wasn’t going to be so easy.

 

With the benefit of hindsight, St. Louis’ brash move in the 1990s to woo back an NFL team looks like one of the worst stadium deals ever made. Over the following two decades, governments have gotten a little savvier in their negotiations with professional sports teams. There are now requirements that teams stay as long as their stadium bond is outstanding. If they don’t stay, these so-called non-relocation agreements force the teams to pay hefty penalties. Nearly all cities are now less inclined to foot the entire bill for stadiums when they see team owners benefiting from luxury suites and other high-price add-ons that increase the team’s valuation and put more money in owners’ pockets. The economic impact reports singing the praises of sports development have largely been discredited.

The era of taxpayer-financed stadiums came about almost by accident. Seeking to limit the use of government bonds in stadium financing, the federal Tax Reform Act of 1986 included a provision that capped at 10 percent the direct stadium revenue -- mostly from ticket sales and concessions -- that could be used to pay for the cost of the facility. That meant that governments would have to raise broad-based taxes, such as on sales or business, to cover the rest of the cost. “They didn’t think that would happen,” says Dennis Zimmerman, a former congressional budget analyst who is an expert on stadium financing. “They thought taxpayers would rebel against that.”

But Congress didn’t account for the fan loyalty and pride that -- at the time -- made raising local taxes more acceptable. The new tax rule came at the dawn of what turned out to be a building boom for professional sports stadiums. Between 1991 and 2010, 101 new stadiums were opened across the country and most included some component of taxpayer funding. Some 22 stadiums built since the 1960s have been financed entirely with public money, according to a 2010 study from the National Conference of State Legislatures. The boom was driven in part by demand from teams and fans for a more sophisticated sports experience than the drab concrete coliseums they were used to. Meanwhile, the launch of Major League Soccer and expansion teams in the other major sports -- the NHL has added 10 teams since 1990, while the NFL has added three, Major League Baseball four, and the NBA two -- added kerosene to the fire.

 

After several efforts by city officials to get out of helping to finance upgrades to the Scottrade Center, where the NHL St. Louis Blues play, a $64 million deal is finally going forward.  (Flickr/Scott Treiber)

 

But the recession’s toll on many cities’ finances, combined with mounting evidence that sports stadiums and arenas often aren’t the economic engine they promise to be, has curbed the public enthusiasm. In the worst-case scenario, stadium financing made a fiscal collapse worse. Stockton, Calif., filed for bankruptcy in 2012 in part because it was laden with debt that it had assumed on a publicly financed arena and Minor League Baseball park.

Spending scarce taxpayer money to build a new sports stadium or arena so that team owners could charge more for tickets seemed increasingly absurd, even to many loyal fans. The Washington, D.C., soccer team, D.C. United, spent years negotiating with the nation’s capital over a new soccer-specific stadium. Those talks effectively shut down once the economic downturn hit in 2008, and the team spent another seven years shopping around in the surrounding counties -- even going as far as Baltimore -- trying to find a local government that would pay for the facility. None would bite. Ultimately, the team stayed in D.C. and is paying to build a stadium on land the city spent $150 million acquiring. The deal includes a non-relocation agreement.

Back in St. Louis, voters were still smarting from the Rams’ exit when they were asked if they wanted to approve partial public funding for a new stadium as a way of attracting a soccer team. They’d heard this tune too many times before. Backers of the proposal spent more than $1 million trying to persuade voters to approve money for the stadium from a proposed sales tax increase. Opponents spent $765 to fly a plane over Busch Stadium, just days before the election, urging “City Services Not Stadiums -- Vote No on Prop 2!” Voters approved the sales tax hike for city services. They rejected the idea of spending any of it on a soccer stadium.

Meanwhile, Kiel Center Partners, the firm that owns the NHL Blues, had asked the St. Louis City Board of Aldermen for $64 million to finance upgrades to the Scottrade Center. Had the city’s voters not been distracted by the soccer stadium proposal and by a heated mayoral election, the financing might have met more resistance. Some aldermen did question whether the city’s 1994 lease with the team required it to pay for upgrades, but still the proposal narrowly passed. If it had been submitted to a popular vote, it most likely would have failed.

Not long after the aldermen acted, a mini-uprising started. Alderwoman Cara Spencer, former state Rep. Jeanette Oxford and former city counselor James Wilson banded together to sue the team. They charged that the bond issuance, which, including interest, would cost the city’s general fund about $105 million over 30 years, amounted to a gift and was therefore illegal under the Missouri Constitution. City Comptroller Darlene Green, who had previously warned against using any city revenue to pay for the upgrades, stepped in to block the bond sale. The additional debt, she said, would put the city’s credit rating at risk at a time when it had already suffered two downgrades over the past year. Mayor Krewson, who remained largely silent during the court battle, says today that it would have been even more devastating to the city’s reputation and credit if it had reneged on the bond approval.

Still, there were many who questioned whether taxpayer money might be better spent elsewhere. The city’s meager reserve fund, for instance, had been decimated during the recession and still hadn’t been built back up. Debt payments, including those for pensions and retiree health care, gobble up 14 percent of the $1 billion St. Louis operating budget. Ratings agencies have consistently flagged that burden -- given residents’ lower-than-average income -- as a big weakness.

Green says she thought her move would spark new negotiations with the hockey team that would include a discussion of alternate sources of revenue. “I thought if we all sat down, we’d just figure it out,” she says. Instead, Kiel Center Partners sued her. “All they wanted was the money, they didn’t care where it was coming from,” she says. “So they just sued me because I was the lowest denominator in the whole thing.”

The Blues’ ownership, which did not respond to interview requests for this story, has called the comptroller’s actions “frivolous, disappointing and embarrassing,” while warning they could be extremely costly to both taxpayers and St. Louis’ reputation.

In the end, the team’s attorneys out-lawyered the insurgents. In November, a judge ordered Green to allow the bond sale. Green signed the paperwork, but held it in escrow so she could appeal. Lawyers for the Kiel Center Partners then threatened her with a contempt of court citation and fines of up to $1,000 a day. In December, Green dropped her appeal and settled. Later that month, the lawyers turned their attention to the plaintiffs in the other suit and filed a motion to require them to pay attorneys’ fees. Faced with the potential threat of covering the rates for some of the highest-priced lawyers in the city, Alderwoman Spencer backed down and settled the lawsuit earlier this year.

So the hockey team got its way. Things like that still happen. But they don’t happen easily, and they don’t happen with broad public support. Several years ago, for instance, when the NFL’s Minnesota Vikings wanted a publicly funded stadium, the state legislature rejected the proposal. Eventually the team got its money, but with a state law capping public contributions to the $1 billion project at $498 million. In 2016, voters in San Diego called the Chargers’ bluff and overwhelmingly rejected funding most of the cost for a new $1.8 billion stadium for the NFL team. The vote sent a clear message to the team’s ownership, which packed up and joined the Rams in L.A. the following year.

With a few exceptions, the decades-long city infatuation with major league sports teams has been cut by a healthy amount of skepticism. Few now speak of stadiums as the windfall agent many thought they would be. To be sure, officials remain guilty of throwing gobs of money at other high-priced proposals. The billion-dollar incentives to win Amazon’s second headquarters are evidence that what Zimmerman, the stadium financing expert, calls “ribbon-cutting syndrome” is still alive and well. But when it comes to public money, public opinion and wealthy team owners, the honeymoon is over. “The Blues had to fight like cats and dogs to get the city to live up to its obligation,” says Kevin Horrigan, a longtime reporter and columnist for the St. Louis Post-Dispatch. “I think a lot of it was, ‘We just don’t want to be snookered again.’"