To achieve economic success, municipalities must find a delicate balance of public and private funding when building a new stadium.
After watching that snooze-inducing game, the answer would be a resounding no. However, that question is not regarding the game itself, it is directed at the amount of money Atlanta residents paid to build the immaculate Mercedes-Benz Stadium. The new Mercedes-Benz stadium is full of first-class amenities including state-of-the-art luxury boxes, the world’s largest video board, a 16-story window with a view of downtown Atlanta, 1,264 beer taps serving 40 different varieties, delicious and inexpensive food, and a 73,000-pound sculpture of a falcon. This stadium, with all of its amazing amenities, came at a price tag of $1.6 billion funded by both private and public money.
The 1,100-foot-long, 360-degree scoreboard along the inside perimeter of the roof of Mercedes-Benz stadium
The birth of Mercedes-Benz Stadium began in 2013 when the Atlanta Falcons and the city of Atlanta announced that a new stadium was to be built in downtown Atlanta with a maximum public contribution of over $200 million. Once the project is complete, however, the total contribution from the public will be $700 million; $200 million for the construction of the new stadium and an additional $500 million that will pay for financing, operating, and maintaining the stadium over 30 years. This enormous public contribution has led to significant criticism and controversy.
Atlanta Mayor Kasim Reed stated that there was “no question” that Mercedes-Benz stadium pays off for the city and its residents. The mayor further explained that the new stadium will allow Atlanta to be the only city in America that will host the college football championship, the Super Bowl, and the NCAA Final Four in three straight years. As a result, the mayor argues that the influx of tourism from these events, and future events, will greatly benefit the local economy.
On the other hand, many economists argue that a public contribution as large as the one made to Mercedes-Benz stadium will have a tough time contributing to the economy overall. While some say the Super Bowl can bring in $400 million to a local economy, Dr. Michael Smith of Emory Goizueta Business School in Atlanta thinks a more realistic number would be $40 million. Economist Victor Matheson explained the reason for the disparity in these numbers. One of the main reasons is the substitution effect. The substitution effect is when customers at a sporting event spend money they were planning on spending anyway. An example would be a couple that would normally spend their money on a Friday night at a restaurant or a movie, and instead, now they spend their money at a sporting event held at Mercedes-Benz stadium. Therefore, in this scenario, there is not an actual increase in economic output in the city of Atlanta; rather its residents are just substituting spending their money at one institution in Atlanta with another.
There is a long history of public criticism of taxpayer dollars spent funding large sports stadiums. The criticism often leads to a taxpayer lawsuit. One example right here in Western New York is the case Murphy v. Erie County. In Murphy, Erie County taxpayers sued challenging the validity of a stadium project. In 1968, the State Legislature enacted a law giving the Erie County Legislature the power to enter into contracts and incur indebtedness in connection with the building of a new stadium. Accordingly, the county legislature adopted a resolution authorizing the issuing of $50 million in bonds to finance the construction of a domed stadium similar to Houston’s Astrodome. The County Executive then negotiated a contract with Kenford Company, which would “operate the stadium as lessee and would pay to the county, over a 40-year term, some 63.75 million dollars, such amount to be reduced by tax revenues generated by the stadium. If the parties could not agree upon a lease within three months after the cost estimates and specifications for the stadium were received by the county, then, the contract specified, the parties would execute a 20-year management agreement whereby Kenford would operate the stadium in return for a percentage of the revenues.”
Plaintiff’s then brought suit arguing that “by giving control over the stadium to Kenford, for either 40 years under the lease or 20 years under the management contract and not retaining any right to use the facility, the county converted the stadium into a private use for Kenford’s benefit.” However, the court ruled against the plaintiffs explaining that their “position misconceives the nature of the public use which the stadium serves.” The court further explained that the stadium was “designed to furnish to, or foster, or promote among, or provide for the benefit of, the people of the county of Erie, recreation, entertainment, amusement, education, enlightenment, cultural enrichment[,]” as declared by the state legislature. Following this case, many other citizens have sued municipalities for giving taxpayer money to build sports stadiums and courts have routinely held in favor of municipalities following the “benefit of the people” logic in Murphy.
The answer to this long-lasting stadium funding controversy lies somewhere in the middle. Public funding will allow for a state-of-the-art stadium to be built, which can then bring tourists and others to a city, thereby improving the local economy. However, if the public funding is so large that the economic output would never surpass the subsidy, it is a detriment to the local economy. Therefore, when a municipality is negotiating the funding for a new stadium, it must find the delicate balance of public and private funding to achieve economic success for the region.
The public funding for Mercedes-Benz Stadium was enormous, but at the same time, there was a vast increase in tourism and major sporting events following the opening of the stadium. Only time will tell if this large public investment will be a success and create economic prosperity for Atlanta. In the meantime, those visiting Mercedes-Benz Stadium can sit back and enjoy the view.
Fox 5 Atlanta
Great article, Greg. I’m impressed with your publishing skills.