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“Infrastructure status” and tax benefits for stadia construction: Boon or bane?


The sports ministry of India has recommended to the finance ministry that sports stadia be accorded “infrastructure status”.

Such a development will aid developers in securing long-term financing from banks at cheaper rates and avail tax benefits.

Stadiums will thus be classified under social and commercial infrastructure which includes educational institutions, hospitals, industrial parks, special economic zones, soil-testing markets and cold chains.

Parties seeking to build sports stadia will thus be able to finance their projects using the 5:25 scheme announced by Finance Minister Arun Jaitley during the last budget proceedings. The scheme stretches the repayment period to the economic life of a project as against the norm of five years.

These loans can be refinanced every five-seven years.

The onus is on the developers to ensure that the projects continue to be viable and not become non-performing assets (NPAs).

Jaijit Bhattacharya, partner, infrastructure and government services, KPMG said:

“Currently, stadiums are closed down after the sports events are over and they are not easily accessible to general public. The government needs to resolve these issues so that the revenue models are clear and sports infrastructure becomes a viable investment opportunity.”

Latika Khaneja, director of Collage Sports Management, added:

“The existing stadiums are highly under-utilized. Unless you allow private developers to open stadiums to public whereby they can charge a fee, who will invest in such infrastructure?”

Nita Ambani, chairperson of the ISL,  believes that there needs to be a sporting culture in the country as well.

She said:

“It is important that we encourage our young children towards sports. Sports should become an integral part of school curriculum. Children must enjoy playing games rather than sitting indoors. I am not saying only cricket or football, but India should become a multisport nation.
We need to work on our infrastructure, on our coaches so that the next generation that is growing up can see sports as a profession.
Today parents don’t encourage kids to take up sports as a profession except for some of the sports that are lucrative. They still ask them to become a doctor, engineer. If sports can become a profession and can have an income to it, it will change things around.”

A Times of India, Bengaluru, article states:

“Stadia are built by governments to encourage a healthy way of life, engaging youth development through sports and games and achieving excellence in sports. It is also the responsibility of every government to ensure it provides spaces and infrastructure, keeping in mind the health of its citizens.
There is no harm in taxing stadia except for the fact that government agencies are, perhaps, overlooking the purpose of building these facilities for promotion of sports in the first place. Although I agree that infrastructure built has to raise revenue for its own upkeep, the ministry of sports must clearly identify activities that need to be taxed -such as exhibitions, rallies, corporate events, events for which tickets are sold etc- from activities purely for promotion of sports which could be athletics and competitions. Be it inter-school, inter-state or nationals, taxing of athletes and coaches must not be allowed at any cost.”

The sports ministry’s proposal, on the face of it, appears to be progressive and beneficial to the nation’s economic growth.

But the experience with funding construction of stadia, specifically with taxpayers’ monies, has been more bitter than sweet.

List of current National Football League stadiums

List of current National Football League stadiums (Photo credit: Wikipedia)

The National Football League, in the US, is one such beneficiary of government largess.

The NFL expects special treatment.

It is estimated that 70% of the cost of building and operating the fields where NFL teams play comes from taxpayers.

Land may also be gifted by local governments eager to attract NFL teams to set up base there.

The Atlantic reports:

“Hidden costs may include city or county government paying electricity, water, and sewer charges for a stadium (such as First Energy Stadium in Cleveland, where the Browns perform), the city paying for a new electronic scoreboard out of ‘emergency’ funds (ditto First Energy) or the issuance of tax-free bonds that divert investors’ money away from school, road, and mass-transit infrastructure (Hamilton County, Ohio, issued tax-free bonds to fund the stadium where the Cincinnati Bengals play, and has chronic deficits for school and infrastructure needs as a result).”

It adds:

“The NFL even accepts subsidies for honoring the U.S. military. Games often are preceded by color guards, or the display of various military banners. This promotes the NFL, not the military, by suggesting professional football somehow is related to national security. The NFL stages an annual ‘Salute to Service’ event during Veterans Day weekend, in which coaches dress up in fatigues as if they were military officers, again trying to create the impression the NFL has some relationship to defense of the nation.

At least the league is showing appreciation to service members, right? If only. In 2015, Senator John McCain of Arizona disclosed that the Pentagon pays the NFL about $2 million per year to stage what appear to be displays of patriotism. Included in 2014 was $675,000 to the New England Patriots to honor National Guard members at halftime: Most other NFL teams received payments for introducing color guards, and for similar bunting-dressed activities. As for that ‘Salute to Service’, in 2014 the NFL donated $412,500 to wounded-warrior projects, and was lavishly praised by partner networks for doing so. The amount is about one-20th of one percent of the league’s annual public subsidy.”

Football fields are also used least in comparison to baseball parks, for instance.

Ted Gayer and Alex Gold of the Brookings Institution concluded in a 2015 study:

“Despite the fact that new stadiums are thought to boost local economic growth and job creation, these benefits are often overstated. Academic studies typically find no discernible positive relationship between sports facility construction and economic development. Most evidence suggests sports subsidies cannot be justified on the grounds of local economic development, income growth, or job creation.”

The Wikipedia entry on stadium subsidies, in its criticisms, states:

“There exist many criticisms regarding the use of stadium subsidies. First, critics argue that new stadiums generate little to no new spending (consumption). Instead, what fans spend in and around the stadium are substitutes for what they would otherwise spend on different entertainment options. Thus, this argument contends, new stadiums do not cause economic growth or lead to increased aggregate income. Because there is not an increase in consumption related to new stadiums, it is not worth the cost for cities to subsidize their construction.

Another criticism of stadium subsidies is that much of the money the new stadiums bring in does not stay in the local economy. Instead of going to stadium employees and other sources that would benefit the local community, a lot of the money goes toward paying the players. The problem is that most of these players do not live in the local community, so the money they make is taken away and spent in other locations. Critics question why a city should subsidize a sports stadium when large portions of the revenue the stadium receives will not be reinvested in the city. They go on to claim that subsidizing job training or improved transportation are smarter investments to make, as they will yield higher returns for the city.

Critics also argue that the construction of new stadiums could cause citizens and businesses to leave a city because of eminent domain issues. If a city is forced to take land from its citizens to build a new stadium, those who have lost land could become angry enough to leave the city. If they are business owners, then they will likely take their businesses with them. This cost, it is argued, must be added in when a city determines whether or not it is worth the cost to subsidize a new stadium.

Finally, critics contend that any benefits resulting from a new stadium are felt by the entire region where the stadium is located and not just the immediate city. However, often it is only the city, and not the whole region, providing the subsidy. Thus, the city is not realizing the full benefits of the new stadium while, at the same time, undertaking the full cost of the subsidy.

A review of the empirical literature assessing the effects of subsidies for professional sports franchises and facilities reveals that most evidence goes against sports subsidies. Specifically, subsidies cannot be justified on the grounds of local economic development, income growth or job creation. A survey of economists also reveals a general opposition toward sports subsidies.

Joel Kotkin on Reason.com says:

“I think this is sort of a fanciful approach towards economic development instead of building really good jobs. And except for the construction, the jobs created by stadia are generally low wage occasional work.

The important thing that we’ve forgotten is ‘What is the purpose of a government? Cities instead of fixing their schools, fixing their roads or fixing their sewers or fixing their water are putting money into ephemera like stadia. And in the end, what’s more important?”

The Heartland Institute provides a list of papers that document the economic impact of publicly funded stadiums here.

I’ll leave it to the reader to draw his or her own conclusions.

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About LINUS FERNANDES

I have been an IT professional with over 12 years professional experience. I'm an B.Sc. in Statistics, M.Sc in Computer Science (University of Mumbai) and an MBA from the Cyprus International Institute of Management. I'm also a finance student and have completed levels I and II of the CFA course. Blogging is a part-time vocation until I land a full-time position. I am also the author of three books, Those Glory Days: Cricket World Cup 2011, Best of Googli Hoogli and Poems: An Anthology, all available on Amazon Worldwide.

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