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January 31, 2009
Are Pro Sports Too Big to Fail?
The Wall Street Journal
by Jonathan V. Last
First there was the tech bubble. Then came the housing bubble. Could the pro-sports bubble be next?
In an economic crisis, the weak die first. So it was no real surprise that the first sports casualties of the current recession came from minor professional leagues: Last month the WNBA shuttered its premier franchise, the Houston Comets, and the Arena Football League, which had been scratching out a living since 1987, canceled its 2009 season. (The LPGA is cutting three tour stops and $5 million in prize money from the 2009 tour, so they're feeling the pinch, too.) The question is, were these failures part of a normal, recessionary, thinning of the herd? Or were they the early warning signs of a pro-sports bubble that may be about to burst?
...Yet teams keep building new stadiums. They're charging bigger premiums -- such as personal seat licenses -- for high-end and luxury seats. Parking, concessions and player salaries keep going up, too. Is it all sustainable?
Perhaps. America's obsession with sports has created a nearly continuous 90-year boom. There have been down moments, but neither the NFL nor MLB has ever contracted, i.e., eliminated, a team -- the ultimate sign of failure. The National Basketball Association hasn't eliminated a franchise either, since it took on its modern form in 1976.
During the Great Depression, baseball did take a significant hit: Attendance dropped 40% from 1930 to 1933 and didn't return to pre-Depression levels until 1945. Player salaries declined 25%. But no teams went belly-up.
Matters might be different this time.
First, franchises have become accustomed to the public financing of stadiums and arenas. During the construction boom of the 1990s, some 50 ballparks, stadiums and arenas were built in the U.S., according to BusinessWeek. On average, taxpayers footed 70% of the bill -- even though team owners reaped the benefits. In baseball, for example, Forbes calculates that the median ballpark is worth $100 million to a team, or a quarter of a franchise's total value. In the '90s, teams argued that new stadiums added to a city's economic vibrancy. Yet studies now show that subsidies for sports stadiums actually create a slight drag on the local economy. And even if cities wanted to believe the boosters, the bad times should now make the current crop of publicly financed stadiums the last. The Vikings, for instance, have started asking Minnesota lawmakers about building a new facility for their team. The response has been laughter.
..."The U.S. government is buying banks, major retailers are going under, and a half-a-dozen newspapers are folding up shop," [Fox Sports Radio's Steve] Czaban says. "Why is it we think this could never happen to sports?"
Posted by eric at January 31, 2009 1:06 PM