Right Field

Taxpayers on the Hook for Empty NBA Arenas

A story out of Memphis highlights the financial strain hitting cities and counties on the hook for professional arenas in light of the NBA lockout.

 

Memphis City Council Chairman Myron Lowery said Wednesday that Memphis and Shelby County have a $250 million debt to repay for the construction of FedEx Forum, so the city must play defense in light of the NBA lockout.

“Our only recourse is to go back to the citizens and ask for a property revenue increase,” said Lowery. “We do not want to do that.”

Lowery said the city and Shelby County depend on game day revenues to pay the $600,000 bond debt bill each season.

Memphis and Shelby County Sports Authority Chairman Bill McGaughey said the FedEx Forum finances are not totally dependent on the lockout. He said there are five other revenue streams, from Memphis Tigers basketball to Disney on Ice.

So if you’re a taxpayer living in the vicinity of a team with a brand-new NBA arena, watch your wallet. Oklahoma City is another locality where taxpayers are on the hook for upgrades and a new practice facility, regardless of whether they’re actually being used.

The city of Orlando, whose Magic are only one season in on a brand new arena, was wiser than Memphis and Oklahoma City. They wrote into their contract that the franchise has to continue payment in the event of a lockout.

That would have been a bigger problem a few blocks away in the old arena. But the new Amway Center came with a new contract between City Hall and the Magic. That deal has been criticized as too generous to the Magic, giving the team nearly all revenue collected at its games, from concessions to parking.

But it also differs from the old contract in a way that provides an important safety net for the city. Under the new deal, the city is guaranteed a payment from the Magic — on top of rent the team pays — even in situations when the Magic don’t play or attendance plummets.

This just highlights that pro stadiums are often a bad deal for taxpayers (see the Cato Institute’s work on the subject or the great book by Baseball Prospectus), and these deals only become worse during a lockout.