Direct Democracy as the Solution to Corruption in Publicly Funded Sports Stadiums

In 2002, billionaire Jeffrey Loria purchased the Miami Marlins, a Major League Baseball team, for $159 million. In May of 2017, Luria agreed to sell the team for reportedly $1.3 billion, earning a profit of over $1.1 billion. Some of that profit can be explained by the increased valuation of all sports franchises in the last decade, but a large reason for the eye-popping jump in value is the Marlin’s new, privately owned—but largely public funded—stadium. In 2011, Miami-Dade County agreed to contribute more than $400 million for the stadium. Including interest, the estimated total cost to the county is $2.4 billion dollars. Prior to reaching a deal for the new stadium, Mr. Loria donated various amounts to local government officials, including $40,000 to the county commission chairman in 2008, and $50,000 to Mayor Alverez.  (The SEC conducted a four-year investigation into whether Loria’s donations were unlawful bribes, but ultimately dropped the investigation.)

Such a story is common in sports stadium construction. In the past 15 years, more than $12 billion in public money has been spent on privately owned stadiums. The loans used to pay for such construction, typically tax-exempt municipal bonds, will also cost the federal government at least $4 billion in taxpayer subsidies to bond holders. There’s an ongoing debate about whether taxpayer dollars should be used to fund privately owned stadiums, but that’s not my focus here. Rather, I want to focus on how this system creates opportunities for corrupt deals between team owners and local government officials.

Before government officials vote on whether to approve public funding for a new stadium, the team’s billionaire owners often make “campaign contributions” to the responsible government officials. It is difficult to prove that these donations are unlawful bribes, as doing so would require proving a quid pro quo exchange. Yet when billionaire owners donate to local government officials, who then happen to approve hundreds of millions of dollars in public funding for the billionaire’s stadium—which directly increases the value of the owner’s assets by hundreds of millions of dollars—it looks a lot like bribery. The example of Mr. Loria making donations to Miami-Dade officials is hardly unique. Consider the following additional illustrations

  • Before owner E. Stanley Kroenke moved the Rams football team from St. Louis to Los Angeles, St. Louis officials offered to contribute $355 million of public funds to keep the Rams in the city. One of the councilwomen responsible for approving the public funding alleged she was offered a bribe in relation to a committee vote supporting the stadium-financing measure, though the FBI ultimately determined that nothing in the allegations was actionable.
  • Zygi Wilf, the owner of the Minnesota Vikings football team, threatened to move the team out of the state before reaching a deal with Minnesota officials, who pledged $400 million in 2012 to build a new stadium. The city of Minneapolis also offered to contribute an additional $150 million up front. Wilf spent millions of dollars in lobbying and public donations prior to the approval from the city of Minnesota, donating to all three gubernatorial candidates in 2010, as well as all four legislative caucuses.
  • In 2015, Wisconsin Governor Scott Walker signed a bill granting up to $400 million of taxpayer funding to build a new stadium for the Milwaukee Bucks. Minority owner Jon Hammes was the national finance co-chairman for Governor Walker, and a political action committee connected to Hammes contributed $150,000 to the governor before the bill.

These examples are commonplace because the risks for owners of engaging in such behavior are low, while the benefits can be hundreds of millions of dollars. Owners are very unlikely to be caught unless they leave a paper trail explaining that their donations to local government officials were bribes. For politicians, the system creates a lose-lose scenario. If they vote against the use of public funds, they risk serious reputational and possibly career-ending harm if the team decides to move to a different city. If they instead give in to the owners’ requests, they could end up costing the city potentially billions of dollars and participating in some morally questionable activity.

One solution to the problem was proposed by President Obama, who tried to eliminate the federal tax exemption that local bonds receive when those bonds are used to finance professional stadiums. Eliminating the exemption would increase the price of stadiums, which might deter cities and states from accepting the deals. However, the proposal fails to change the system, and instead further shifts the financial burden from federal to local taxpayers.

To eliminate the opportunities for corrupt actors, Congress should consider implementing legislation that makes voter approval mandatory before public funding is used for sports stadiums. Drafting such legislation that both lacks loopholes and is constitutional and will be challenging; both Seattle and Minneapolis unsuccessfully tried to implement similar legislation that would require public approval. By making voter approval mandatory, the opportunities for billionaire owners to bribe their way into obtaining public funds for their stadiums would decrease, because the owner must also receive the approval of the general population in any public financing deal. In addition to eliminating much of the corruption risk, the proposal has the added benefit of giving the citizens a voice in deciding whether or not they wish to fund the stadium, and whether the cost/benefit analysis makes sense for them individually.

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