Government-Funded Arenas And The NHL Lockout

Almost every major professional sports team plays in a government-funded arena. That is a huge State subsidy to sports league owners.

If NHL owners had to pay for their own stadium, that would be a lot of idle capital during a lockout. With no arena expense, the owners’ biggest expense is salary. With zero capital expenses, that make a lockout less costly.

For example, the Barclays center cost $1B. However, no NHL team plays there. In other cities, arenas would cost less. Suppose that the typical NHL arena cost $500M, and is shared with an NBA team.

Most arenas are shared with an NBA team. The arena holds other events on other days. However, during a lockout, it’s hard to schedule other high-paying events on short notice. If the arena costs $500M, the NHL fraction of the cost is approximately $150M.

The capital cost of each arena is approximately $150M. There are 30 teams. The NHL’s total arena capital expense should be $4.5B. In 2011, NHL revenue was $3B.

However, actual profits are much less. With a profit margin of 10%-20%, NHL profit would be approximately $300M-$600M. That’s a profit rate of approximately 10% compared to the capital cost of the arena.

If sports leagues had to pay for their own arenas, it would barely be a profitable business! The State assumes the capital expense. That is a huge State subsidy to sports owners.

Sports are bread and circuses, keeping the masses complacent. Also, sports league owners are billionaires and insiders. They can afford to lobby, in exchange for a State subsidy. If I start an entertainment business, I wouldn’t get the government to pay my capital expenses. That gives sports leagues an unfair advantage over smaller entertainment businesses.

The government finances sports league owners during a lockout, by paying for their stadiums and reducing their capital expense to practically nothing. With almost no capital expense, their biggest expense is player salaries. If owners had to pay for their own stadiums, a lockout would cost a *LOT* more money, due to the large amount of idle capital, the arena expense.

Almost all professional sports leagues play in government-financed arenas. That makes them more profitable. That subsidy also encourages owners to lock out their players. With State-financed arenas, owners don’t have idle capital during a work stoppage, making a lockout more financially attractive.

2 Responses to Government-Funded Arenas And The NHL Lockout

  1. The owner of the Oilers, Daryl Katz, recently strong-armed Edmonton council into agreeing to a new arena deal. The original proposal was blatantly one-sided and struck down by council, but the one that succeeded was barely better.

    The Oilers have been catastrophic losers for the last several consecutive years. Yet the current arena sells every seat in the house at every Oilers game. We have one of the most dedicated fanbases in the league. Katz levied thinly-veiled threats that without a new arena with higher capacity, he might take the team elsewhere.

    It is obvious that threat had no teeth, but it made council jump. Now, property taxes will go up in order to subsidize a billionaire’s hobby enterprise. The city is on the hook for the majority of construction expenses, while Katz’ portion of the cost will be paid out over the course of 35 years. It is effectively an interest-free loan made with my money at zero interest without my consent.

    The ability of sports team owners to bend entire cities to their whim is frightening.

    Just ask the people of Glendale, Arizona.

    • It’s mostly lobbying and the Principal-Agent problem. Sports league owners are already billionaires and insiders. It’s very easy for them to lobby for a State-paid stadium. That’s a government subsidy of their business.

      If I wanted to start my own entertainment business, I wouldn’t get the same State subsidy that sports leagues get. I’m paying higher taxes to subsidize their business. Even if I had a successful small entertainment business, the taxes I pay subsidize my competitors, larger sports leagues.

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