Change to Sacramento Soccer Stadium Deal Would Be Bad for Taxpayers

Change to Sacramento Soccer Stadium Deal Would Be Bad for Taxpayers

Amid much fanfare, Major League Soccer last week announced that Sacramento has been awarded the 29th MLS franchise.  Attention now turns to building a new $252 million stadium in the downtown Sacramento railyards before the team’s launch in 2022.

Unfortunately, taxpayers are about to have a bucket of cold water thrown in their faces in the form of a $27 million giveaway to the new team’s ownership.

The Sacramento City Council approved a term sheet with the Sacramento Republic FC owners in a unanimous vote in April.  As part of the term sheet, the team agreed to pay upfront for infrastructure improvements, including a new light rail station.

The city would create an Enhanced Infrastructure Financing District to reimburse the ownership $33 million, paid for by a special property tax assessment in the district.  The $33 million tab also includes waiving $1.8 million in permit fees and a $3 million payment for public safety costs.

Paying for infrastructure is not an unreasonable public expense, as it would surely be part of any new development in the Sacramento downtown railyards where the stadium will be built.

But in the days before the MLS announcement, Sacramento Mayor Darrell Steinberg dropped a bombshell – the mayor is proposing the City Council approve changing the deal to instead give a $27 million, taxpayer-backed loan to the Republic’s billionaire owner, Ron Burkle.

Steinberg told the Sacramento Bee that, “the proposed loan makes it easier for the (Republic ownership group) to finance its $200 million league expansion fee, as well as pay for increased construction costs.”

In effect, the $27 million loan will be a giveaway to a billionaire team owner.  Yes, the team is supposed to pay the loan back with interest, but recent history suggests we may not see the money for ages.  Remember that it took 20 years for the city to refinance a $73 million loan made in 1997 to bail out the Sacramento Kings.

It also raises questions about the new team’s financial soundness.  If the new ownership group has the resources to build the stadium and pay the $200 million expansion fee, why does it need a $27 million loan from Sacramento taxpayers?

Neil de Mause, who has co-authored a book analyzing taxpayer-funded stadium projects, recently wrote  that the original $33 million infrastructure incentives are “a better deal than many cities are getting for their new MLS stadiums” and that “it does seem like the league held out on an announcement in order to get these concessions from the city.”

Public funding of stadiums is also not a good deal for taxpayers, which almost never generate the amounts of tax revenue, new job creation, or economic activity routinely promised by stadium backers as selling points.

There are also questions about the soundness of the MLS’ finances and the wisdom of such rapid expansion for the league.

Noted Stanford economist Roger Noll, who with his co-author and fellow economist Andrew Zimbalist are the nation’s foremost experts on public-financed sports deals, called public financing of a Sacramento soccer stadium “risky” last year in an interview with the Sacramento News and Review and noted that “in MLS, several franchises would be in financial trouble without the expansion revenue” from teams from like the new Sacramento club.

“MLS needs a national footprint to become a true major league sport,” he says, “but I fear it is becoming too large in that the TV money will be insufficient to sustain that many teams.”

Given this uncertainty, one thing is clear – Sacramento should proceed with caution in committing public funds to its new team.

Tim Anaya is the Pacific Research Institute’s communications director.

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Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.