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Is the End of Tax-Funded Subsidies for Professional Sports Stadiums Near?

Amidst polarizing protests by figures such as Colin Kaepernick, the National Football League and other professional sports organizations have stood at the center of political discussions surrounding free speech, racial inequality, and the role of social media in government in recent years. Amidst contentious debate, however, a closely related topic of advantages and monetary support given to professional sports teams when they propose the building of a new stadium in a community bears a surprising attribute when political posturing is stripped away: bipartisan agreement.

Specifically, the phenomenon of governments using tax-exempt municipal bonds to compete for the favor of sports teams by utilizing such bonds to finance portions of often extravagant stadiums is an issue which has garnered surprising political cohesion in recent years, and may be poised to spur a change in the policies surrounding the issuance of tax-exempt government debt.

Under current policy, it is often possible for states and municipalities to incentivize, and in effect vie against one another for, the favor of sports teams by issuing tax-exempt bonds that they can then use to help pay for stadium construction projects. While the Internal Revenue Code stipulates that bonds issued by state and local governments will lose their tax-exempt status if certain conditions are not met, communities eager to attract professional sports franchises have found ways around the Code’s effort to allow the issuance of tax-exempt debt only for purposes which clearly serve the benefit of the public.1

Under the regulations of the Internal Revenue Code, debt issued by a government may be exempt from taxation, but only if, under the §141 tests, it is not classified as a private activity bond.2  The purpose of these tests is to, “…limit the volume of tax-exempt bonds that finance the activities of nongovernmental persons, without regard to whether the benefits of tax-exempt financing are actually transferred to a nongovernmental person.”3 In other words, the tests exist specifically to set a bright-line rule limiting governments’ ability to misuse their debt-issuance and taxation powers for excessively private, and perhaps ill-advised, purposes. Since the tax-exempt status of the income earned on municipal bonds is a primary reason for investing in the vehicles, the loss of this status is extremely undesirable.4   There are two primary private activity bond tests, and failure of either will cause a bond to lose its tax-exempt status.5

The first is the private business test, which states that if proceeds are used for the purposes of private business and the principle and interest payments are secured by property used for private business purposes, the interest paid on these bonds will lose its tax-exempt status.6 In the context of stadium construction in recent years, governments have circumvented this test by securing the bonds themselves, rather than by attaching an interest to the buildings they are used to fund.7 While issuing bonds generally requires either a voter referendum or action of an elected official after reasonable notice has been given, this form nevertheless persists.8

The second test, the private loan financing test, states that if bond issue proceeds are used excessively to finance loans to private parties then the bond will also lose its tax-exempt status.9 With respect to this requirement, governments often must get even more creative if they are to use bonds to attract professional sports teams. Because any payment by the team back to the government would meet the criteria of the private loan financing test, governments cannot recoup their investment at all from the franchises they subsidize.10 Instead, they often turn towards more general taxes.11 So called “tourist tax[es]”, taxes on items such as hotels and rental cars, have proven especially popular, perhaps because the public in the community, eager for a pro-sports team, will often not have to directly bear the cost of paying them.12

This practice of competing to attract sports franchises is not new, but the structure of how deals are put together has evolved substantially. Ultimately, the practices which we see today are products of response to the gradual editing of the tax code. In 1968, the financing of stadiums was explicitly excluded from the Revenue and Expenditure Control Act, meaning that governments could lend to teams without regard to any of the private activity tests that existed at the time.13 Reform of the Internal Revenue Code in 1986, however, eliminated exemptions–including the carve-out for the financing of stadium projects–and the practices of directly subsidizing teams that are seen today began to take form.14

In many cases, the burden this new era of sports team subsidization places on taxpayers can be substantial–even if it is not always apparent to voters. In the recently closed deal to move the Raiders NFL franchise from Oakland to Las Vegas, for example, the Nevada legislature in late 2016 approved a debt bill for taxpayers which will amount to something in the ballpark of $750 million.15 While proponents of the project are thrilled by the move and contend that the Las Vegas economy is uniquely able to support this type of project due to a constant influx of visitors, critics of the move are worried that the financials underpinning the project are overblown.16

The justification for footing substantial portions of deals like this is simple–the driving of economic activity and creation of positive community growth.17 The problem, however, is that there don’t actually appear to exist any substantial economic benefits to governments bankrolling this type of work.

In a review of twenty years of academic studies on the topic from 1994 to 2003, the Brookings Institute in 2016 found, “no discernible positive relationship between sports facility construction and local economic development, income growth, or job creation.”18 The reason for this, as stated by the Institute, was due at least in part to the relatively small percentage of economic output that could be contributed to teams’ revenues, inflexible leisure budgets of the general public, and offsetting reductions in other leisure activities.19

While the Raiders construction project is estimated to generate 25,000 construction jobs in the Las Vegas area by proponents, the Brookings analysis calls into serious question the viability of the project.  Especially considering the Raiders’ aggressive lobbying in the community, it is easy to see why many are concerned that the use of taxpayer funds may be an ill-conceived move in a city known for rolling the dice. Las Vegas is known worldwide both as an oasis for consumers to dispose of their inflexible leisure budgets as quickly as possible, and as one of the heaviest hit from the overbuilding and real estate speculation immediately preceding the Great Recession.20 It is certainly possible that Vegas is an exception to historical precedent, but the city’s track record does little to lend credibility to the idea that bond-funded stadiums are the pinnacle of responsible government investment.

Moreover, the scale of costs associated with new stadium construction has increased dramatically in recent years, raising considerable questions about whether loaning public funds to finance these often massive and extravagant projects is appropriate, even if economic benefits can be found to exist. In the 1950s, the average cost of facility construction was $3.8 million in 2000 dollars, and stadium construction was almost always funded privately.21 Between 1990 and 1998 it had reached $200 million.22 Between 2000 and 2016, the forty-three professional sports stadiums constructed cost an average of $618 million.23 The expansion fever shows few signs of subsiding, and the new Raiders development has been slated for an eye-popping cost of approximately $1.9 billon.24

With these factors mind, it is perhaps less surprising to see agreement across political parties on this topic, and indeed in recent years the initiative to do away with the practice of local and state governments essentially footing the bill for huge portions of stadiums has gathered considerable momentum.

Barack Obama proposed a change to the tax code in his 2017 proposed budget that sought to eliminate the ability of state and local governments to use tax-exempt bond financing for professional sports facilities.25 Noting that these financing practices gave a substantial benefit directly to private professional sports franchises, the Obama administration reasoned that the current practice contributed to excessive amounts of debt being issued, and perhaps more troublingly, “shifted more of the costs and risks [of stadium construction] from the private owners to local residents and taxpayers in general.”26

While the Trump administration’s 2018 budget did not contain similar language, it would appear that there still remains growing scrutiny in regard to the tax and financial advantages given to professional sports.27 As part of the ongoing disagreements over protests during the national anthem at NFL games, President Trump on October 10th tweeted that it was time to, “Change tax law!”, in regard to the “. . . massive tax breaks . . . ” that the National Football League received.28 While the exact meaning and reference of this message isn’t completely clear, it has been argued, at least in media settings, that what the President was likely referring to were the exact same uses of tax-exempt bonds to finance stadium projects that President Obama sought to eliminate.29 While there may very well be other factors contributing to this agreement, the fact that the diametrically opposed incumbent and previous presidents appear to sit on the same side of this issue merits additional attention.30

To lend a final level of certainty to the progress opposition for using tax-exempt debt to pay for sports stadiums has achieved, last year bills were submitted to both the House and Senate to eliminate the use of tax-exempt debt for use on stadiums.31 It is especially noteworthy that the House bill is sponsored by a Republican, Oklahoma’s Steve Russel, while the Senate’s is sponsored by New Jersey Democrat Cory Booker – a factor which may point to mounting bipartisan support.

The form of the bills essentially follows the ideal laid out by President Obama in his 2017 budget, but also takes the proposal a step further. In both cases, an amendment to the Internal Revenue Code would be added which treats obligations financing professional sports stadiums as automatically meeting the §141(b) private payments test–just as the Obama budget did.32 In doing this, there no longer needs to be an analysis of whether the payments of bonds used for stadium construction were to be repaid by private business activities.

The bills go beyond the Obama budget, however, by also stipulating that the private security test will also not be analyzed with respect to bonds used for stadium construction–meaning that it no longer matters whether the debt is collateralized using the property itself or a promise from the government.33 Closing this analysis stops states and municipalities from self-securing bonds which would be used for stadium construction, effectively ending any ability to subsidize stadium construction using tax-advantaged debt. Ultimately, this two-fold approach would bring an end to the use taxpayer funds to finance building projects with dubious, at best, prospects of return on investment, and highlights clearly the frustrations which have mounted for decades as the stadium-building frenzy accelerated.

Serious questions remain as to whether the current Congress or administration will be able to reach agreement on meaningful tax reforms. However, when viewing the circumstances surrounding this particular area of the tax code, it is apparent that the developments are more than political posturing. There is considerable data calling into question the efficacy of using tax-exempt bonds to fund professional sports stadiums, and while the temptation to create jobs is strong there is little evidence that stadiums are the right vehicle to encourage healthy, sustainable growth. Moreover, it has been nearly fifty years since the Tax Reform Act of 1968 laid out a specific exemption for the construction of professional sports stadiums, and over thirty since the Internal Revenue Code first attempted to roll back this exemption in 1986 with little effect other than to place more risk and burden on taxpayers willing to make hasty decisions for the love of the game.34 The experiment of subsidizing stadiums, in short, appears to be a failure. Passage of one of these bills currently being considered would carry out the intent of the 1986 change to the Code, clear the way for more responsible use of taxpayer assets, and ultimately encourage less onerous tax burdens being placed on businesses and individuals–changes which would all point to more responsible execution of government duties.

  1. See I.R.C. § 141(b-c) (2005); Ted Gayer et al., Tax Exempt Municipal Bonds and the Financing of Professional Sports Stadiums, Brookings Inst. (2016),

  2. See I.R.C. § 141(b-c). 

  3. Private activity bonds, in general, Mertens Law of Fed. Income Tax’n § 8:17 (West 2017).  

  4. See id. 

  5. I.R.C. § 141(b-c). 

  6. I.R.C. § 141(b). 

  7. Gayer et al., supra note 1, at 5. 

  8. Id. at 7. 

  9. I.R.C. § 141(c). 

  10. Gayer et al., supra note 1, at 15. 

  11. Id. at 7. 

  12. See id. at 7. 

  13. Id. at 6. 

  14. Id. at 7. 

  15. Associated Press, Nevada Approves $750 Million for Las Vegas Stadium, N.Y. Times, Oct. 16, 2016, at SP4. 

  16. See id. 

  17. See Gayer et al., supra note 1, at 5. 

  18. Id. 

  19. Id. 

  20. See generally Associated Press, supra note 15. 

  21. John Siegfried & Andrew Zimbalist, The Economics of Sports Facilities and Their Communities, 14 J. of Econ. Perspectives 95, 97 (2000). 

  22. Id. 

  23. Gayer et al., supra note 1, at 12-13. 

  24. Associated Press, supra note 15. 

  25. Dep’t of the Treasury, General Explanations of the Administration’s Fiscal Year 2017 Revenue Proposals 83 (2016),

  26. Id. 

  27. See generally Office of Mgmt. & Budget, Budget of the U.S. Government— A New Foundation For American Greatness – Fiscal Year 2018 (2017). 

  28. Donald Trump (@realDonaldTrump), Twitter (Oct. 10, 2017, 3:13 AM),

  29. Neil deMause, Trump has one thing right about the NFL: It gets too much taxpayer funding, Wash. Post (Oct. 11, 2017),

  30. See id. 

  31. No Tax Subsidies for Stadiums Act, H.R. 811, 115th Cong. (2017); Eliminating Federal Tax Subsidies for Stadiums Act of 2017, S. 1342, 115th Cong. (2017). 

  32. I.R.C. § 141(b) (2005).; H.R. 811; S. 1342; Dep’t of the Treasury, supra note 9, at 83. 

  33. H.R. 811; S. 1342. 

  34. See Gayer et al., supra note 1, at 6-7. 

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Ken Johnson