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Points of View: Just Say No to Subsidized Basketball |
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Written On: May/June 2006 |
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Written By: by Chris Van Dyk and Mark Baerwaldt |
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One of the principles of a free market economy is that the market will weed out good business ideas from bad. Government, for better or worse, will not make a collective decision, nor force one upon us. People and businesses will take risks, and for doing that, will benefit, sometimes greatly, from good ideas, and suffer, sometimes mightily, from bad. It is not the responsibility of government to collectively underwrite our bad ideas while letting us profit from the good.
The businesses of professional sports and coffee distribution provide good examples. In a free market, the people of Washington should no more share in the profit and gain resulting from the brilliant creation and building of the world’s most successful coffee shop chain, without having invested in it, than they should suffer the purported losses of a perhaps ill-advised acquisition and operation of a private, for-profit, professional basketball team. The undue confiscation of coffee profit would be as wrong as the undue underwriting of basketball loss. Unfortunately, for taxpayers, the abuse and unfairness of the proposed bail-out of the basketball team by its owners, most prominent of whom is the founder of the coffee business, is real.
Key Arena, owned and operated by the City of Seattle, is leased to the basketball team and separately to other for-profit entertainment venues, and was rebuilt in 1994 from the foundation up for $92 million. The debt incurred was to have been paid with revenue from operations. The City of Seattle, exercising business judgment known as falling for a bad idea, is now paying on its guarantee of that debt. The problem's proposed solution would tear down the building, move that debt far into the future, incur new debt, and pay for it all with revenue from a different source. That source is car rental taxes, hotel/motel taxes and a general sales tax. Ultimately, the source is you and, because the debt is pushed well into the future, it is also your children.
This is the proposed pro-basketball tax subsidy. The excuse for government intervention in the marketplace is economic development. Major economists, including Alan Sanderson at the University of Chicago and Roger Noll at Stanford, have debunked the myth of economic development related to professional sports subsidies. Professor Noll writes: "...sports is not, from a regional standpoint, an 'export' industry. Nearly all of the income that a sports team generates from attendance represents a substitute for other discretionary entertainment and recreation expenditures by people who live in the local community. If a new or improved sports facility generates increased revenue for the tenant, the source of this revenue is reduced patronage of theatres, restaurants and other forms of discretionary expenditures. New sports facilities slightly reduce, rather than increase, local employment, as high-paid jobs shooting jump shots replace lower paying jobs in other types of businesses." (Testimony submitted to the Washington Senate, Ways & Means Committee)
The Sonics payroll for 16 players is about $50 million per year. That is why the team loses money, and why this bailout strikes anyone who can read a profit and loss statement as nuts.
Polls show voter outrage. City Council President Nick Licata has one that says 63 percent of Seattle voters prefer the Sonics leave town if public funds must be used to keep them here. Seattle is a great city. It has any number of private, for-profit businesses competing for the entertainment dollar. With the exception of the baseball and football teams, residents and visitors choose freely those for which they wish to pay. We should not add one more set of overpaid pro-sports players and their for-profit owners to the welfare roll of subsidized entertainment businesses, to compete against privately funded businesses.
House Speaker Frank Chopp said the state constitution has no requirement that Washington fund a professional basketball team. We hope members of AWB will remember this as legislators seek their support this election year. The relevant question is, do you support the Constitution and free markets, or tax subsidies for professional sports teams?
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