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The Cost of Replacing Rupp Arena

September 16, 2009

Several weeks go North of Center published my article on the prospect of a new Rupp Arena.  To my knowledge, IMG/ISG and the UK Athletics Department have yet to release any official news on the project, although those well-connected people have stumbled upon some rumblings.  See Kentucky Sports Radio’s blog post, “Is There a New Arena in the Works?”

The Cost of Replacing Rupp Arena

Corporate Welfare and Lexington’s Basketball Tradition

Every time I watch a home University of Kentucky basketball game that broadcasts nationally on CBS or ESPN, I hear announcers regurgitate the same platitudes about Rupp Arena.  It is a cathedral, a sacred space, the epicenter of the basketball-crazed Bluegrass Region.  Glory, honor, and heritage ooze out of every nook and cranny in the arena.  Rupp’s rafters bear witness to an unparalleled tradition of excellence, and its court has been graced by college basketball’s all-time great players and coaches.  Such reverence from these announcers makes it seem as if Rupp Arena is Lexington’s most functional building, or at least a space good enough for its rabid fan base.

Oh, were it that simple.  Lexington taxpayers should be suspicious next month when the London sports marketing firm IMG/ISG releases a feasibility study to determine whether or not Lexington can replace Rupp Arena, which is now 33 years old.  The study, authorized by the Lexington Center Corporation and endorsed by the University of Kentucky, will detail the logistics behind financing and building an arena that, for many people, seems to be superfluous.  Worse, it smacks of corporate welfare, an all-too familiar scenario in Kentucky, where politicians divvy out tax breaks, subsidies, and preferential treatment to profiteering entities that least need a helping hand.

The prospective new Rupp Arena raises several questions for Lexington, a city whose leadership has shown itself exceedingly willing to spend public money in ways that benefit private enterprises.  Each year, taxpayers in the United States spend over $2 billion on privately-owned sports stadiums and arenas.  How much public money will go toward building a new arena in Lexington?  Who will profit from a new arena?  Can the Lexington Fayette Urban County Government (LFUCG), which faces a $27 million budget deficit for the upcoming fiscal year and is obliged to provide its citizens with infrastructure upgrades, justify contributing any money toward a new basketball arena?

These questions are complex, and since IMG/ISG (the prospective investor) stands to profit from a new arena with luxury suites, more seats, and top-notch amenities, their feasibility study may not address these issues directly or honestly.  UK Athletic Director Mitch Barnhart and Lexington Mayor Jim Newberry have already said that tax dollars will not support a new arena if it were built, but that promise, and the prospect that private financing will come through in a global recession, is fleeting.

To me, building a new Rupp Arena seems like a profound misappropriation of public energy and ingenuity, if not money.  Lexington has many problems that take precedence over upgrading its basketball arena, and they are problems that will require long hours of work to ameliorate.  In anticipation of IMG/ISG’s feasibility study, I offer a tale of three cities:  New York, Seattle, and Lexington.  Each tale provides a radically different example of how a community can decide to treat the relationship between sporting venues, corporate profit, and public assets.

New York

Those who want to finance sports venues with public money have long argued that new stadiums boost local economies by providing jobs and fostering business.  This logic, which has been proven false, dictated financial policy in New York over the past several years, when the city financed two new baseball stadiums.  The New York Yankees and Mets, the two wealthiest baseball corporations in the world, demanded public support for their new venues, and George Steinbrenner, whose Yankees franchise was worth $1.2 billion in 2007, even threatened to move his team to New Jersey if New York didn’t pony up tax dollars to defray the cost of building a new stadium.

After much political posturing, city officials, led by Mayor Michael Bloomberg, approved New York’s stadium projects.  The Yankees seized land in the South Bronx and began building on a plot where Macombs Dam Park once stood.  The park, a recreational area where many of the poorest residents in the Bronx played tennis, basketball, and baseball, was sacrificed so the Yankees could benefit.  The stadium construction project included plans to replace Macombs Dam Park, but when the city announced that a lack of funds would delay the park’s relocation, Mayor Bloomberg downplayed the hiccup by telling reporters that “you don’t have progress unless you inconvenience a few people.”

It’s hard to see the progress in New York, though.  In the end, the New York Independent Budget Office calculates, city and state taxpayers contributed over $528 million to the new Yankee Stadium and at least another $234 million for the Mets’ new park, Citi Field.  A good deal of that money comes from tax exempt bonds and other inscrutable subsidies programs, which means that the Yankees and Mets can take the city and state taxes they’ll owe New York and use that money to pay off their construction debt instead.  Because of the stadiums, the city and state will not receive millions in much-needed tax revenue over the next decades, and so far, the new stadiums have generated little to no new jobs or economic growth.  Meanwhile, Steinbrenner and Mets owner Fred Wilpon reap the profits that come with their new digs.  The entire New York stadium episode shows how far a city will travel to assist private corporations that do business in it, regardless of the economic and social cost to the community.

Seattle

In Seattle, a much different ethos has prevailed over time.  There, the NBA’s Sonics played in the undersized KeyArena (built in 1995).  When Howard Schultz, the billionaire team owner (and co-founder and CEO of Starbucks), could not procure tax funding for a larger arena, he sold the team to other local investors.  Voters denied Schultz because they were already frustrated that the Seattle Legislature had committed over $800 million to new baseball and football stadiums during the 1990s.  So when the Sonics came looking for money, Seattle residents formed a task force called Citizens for More Important Things, a group that turned public opinion against subsidizing billion-dollar sports corporations.

Finished with doling out money to already-wealthy sports franchise owners, Citizens for More Important Things focused efforts on getting funding for healthcare, education, and affordable housing initiatives.  On their website, they ask a compelling question: if city officials can pay for stadiums, why can’t they pay for the things Seattle needs.  Today, Seattle has an ethic of separation between sports and public money so stringent that the city recently passed a federal rule forbidding its publicly-funded Metro Transit from running direct shuttles to and from baseball and football games.  Seattle citizens hardly blinked in 2008 when the Sonics, under new ownership, asked for money once again and threatened to leave if they did not get it.  When taxpayers refused to subsidize a new hoops arena, the Sonics packed up and moved to Oklahoma City.

Lexington

Lexington is not like New York or Seattle because its team, the Wildcats, is a collegiate franchise, not a professional one.  The Wildcats are not privately-owned like the Yankees Mets, and Sonics, and Big Blue fans do not have to worry about the team relocating to another state at the whim of greedy entrepreneurs.  However, in many ways, Lexington parallels New York and Seattle.  We stand to learn a great deal from how these cities financed sports and entertainment venues.  Lexington faces, like most U.S. urban areas, significant financial challenges and social inequalities, so stories like what happened in New York and Seattle may be able to help us hold our leaders accountable as we try to figure out how they spend public money.

My tale of three cities is complicated by an entangled web of allegiances and financial interests that links UK basketball to Lexington’s government and businesses.  UK is not unique among top-tier college programs in that it lets external corporate entities profit from its most lucrative product, athletics.  Television companies generate billions from advertising revenues, clothing outfitters make millions from merchandise licensing agreements, and the list goes on.  However, UK is virtually unique among colleges in that it does not own its own arena.  Most universities own on-campus venues, where they play the majority of their games, but UK pays rent to the Lexington Center Corporation, a non-profit 501 c4 corporate agency of LFUCG.

Until the mid-1970s, UK played in its on-campus arena, but downtown merchants, in search of revenues, strong-armed the university administration into signing a lease at yet-to-be-built Rupp Arena.  As Betty Boles Ellison claims in her book, Kentucky’s Domain of Greed, Power, and Corruption, “The practice of protecting downtown Lexington at the university’s expense is so ingrained and incestuous that it continues today.  Few people ever give it a thought, and if they do, surely ask no questions.”  Ellison estimates that since moving into Rupp Arena in 1976, UK has lost millions of dollars in advertising and concessions revenue.

It’s almost impossible to tell whether or not citizens of the Commonwealth are getting screwed over because UK rents space at Rupp Arena.  Basketball revenues are funneled into the Athletics Association coffers, not general education funds.  Ellison’s bombast journalism notwithstanding, it’s likely that UK’s arrangement with Rupp is mutually beneficial—the city and its non-profit corporate arm make money they wouldn’t otherwise generate, and the university doesn’t have to worry about maintaining its own facility.

Similarly, it’s almost impossible to say who benefits from a new arena, and to what extent.  Rupp Arena is currently backed by the Lexington Center Corporation, the Downtown Development Authority, the Downtown Lexington Corporation, and other abstruse hierarchies who benefit financially from UK basketball.  And if IMG/ISG has its way the University of Kentucky would become the first major collegiate program to have a privately-financed stadium.  IMG/ISG therefore stands to become the next foreign corporate conglomerate that makes money off of Lexington.

It could be that the cost of a new Rupp Arena should be measured in what would get ignored in Lexington, not how much tax money (if any) gets spent.  I’ve found that such an opportunity cost analysis is much easier to work though than figuring out the trail of public and private dollars that flow in and out of Rupp.

In 2007, when rumors surfaced about a new Rupp Arena, Mayor Newberry suggested that the project would be funded by TIFs (Tax Increment Funding).  When Kentucky Legislators approved the TIF model for all counties within the Commonwealth, they intended to legalize a funding mechanism that allows cash-strapped municipalities to revive blighted urban areas and decaying infrastructural systems.  TIFs offer the illusion that we can create money out of thin air; they are breaks that excuse businesses of the tax they would owe if the value of their property were increased.

All too often, when TIFs are used to fund sports and entertainment venues, they turn into tax breaks for corporations.  TIFs are a ruse, a way that politicians and arena proprietors can claim that the public won’t have to pay for a new arena.  The truth is that the public does pay, often for 20-30 years after a new arena is completed because local governments lose out on tax revenues.

Until IMG/ISG releases its feasibility study, we don’t know whether TIFs will be part of the new Rupp Arena equation.  But we can ask, however, whether a new arena the most appropriate implementation of the TIF model.  Should we not use our imaginations and establish a project that helps local affordable housing programs get off the ground or revives substandard city sewer systems?

Sources

For estimates of the amount of public money spent on stadiums and arenas, see Neil deMause and Joanna Cagan’s Field of Schemes:  How the Great Stadium Swindle Turns Public Money into Private Profit.  I obtained information on the LFUCG budget deficit from Eric Patrick Marr’s Ace Weekly blog story on the Lyric Theatre (Feb. 17, 2009).  The worth of the Yankees and Mets is as reported in a 2007 Forbes story.  Mayor Bloomberg’s comments on the stadium come from a report by ESPN’s Outside the Lines reporter Jeremy Schaap. All information about IMG/ISG’s involvement in Rupp Arena comes from press releases that are posted on their company website.

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2 Comments
  1. Luke permalink

    Awesome post Andrew. Sorry it has taken me this long to read your blog!

  2. I think new arena will be a great thing ,
    It will bring more life to the place …

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