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Sunday, March 8, 2009

Bailout Stadium

On the Communism Channel, there was a discussion of Citigroup's naming rights deal with the Mets for their new stadium. Citigroup is paying $20M per year over 20 years for the naming rights.

The comedians were discussing "Should Citigroup cancel the licensing deal, since they're receiving State bailout money?" The answer was "No! Citigroup already made a promise to pay. They are obligated to honor the contract."

In effect, Citigroup is receiving bailout money from the Federal government and then spending that money on marketing and lobbying. That is obviously blatantly immoral.

Even without explicitly allocated bailout money, Citigroup receives massive State subsidies, via negative real interest rates. Even when there is no recession/depression, financial industry executives receive massive State subsidies. They get first dibs on printing and spending new money. Their profits, salaries, and bonuses are paid by the rest of society as inflation. These financial industry executives then spend massive amounts of money on marketing and lobbying, which guarantees that reform can never occur.

In bankruptcy, Citigroup would be forced to default on its naming rights deal, and the Mets would be allowed to choose another sponsor. For example, Enron was the sponsor for the Astros' stadium, and the Astros got out of the deal when Enron was unable to make its next payment.

Even if Citigroup isn't forced into bankruptcy, the naming rights deal is still worth something. Suppose the naming rights deal is still worth $10M per year. In that case, Citigroup should sell the naming rights deal, and owe the difference to the Mets.

To be fair, everyone should refer to "Citi Field" as "Bailout Stadium". I doubt that will get traction in the mainstream media.

Almost all sports stadiums are funded via taxes. This is an outright State subsidy to the team owners.

Here's how the stadium tax loophole works. Stadiums are a "public good" (even though ticket sales go to the team owners). Therefore, cities may issue bonds to raise money for the stadiums. Interest payments on municipal bonds are exempt from Federal income taxes. Therefore, the interest rate for stadium bonds is lower than the comparable rate for debt elsewhere. Plus, the stadium debt is backed by the State, rather than the individual team.

There's also an extortion effect. If a city refuses to pay for the stadium deal, then the team owner may say "**** you!" and take the team to another city. Then, fans are angry over losing the stadium. Further, the mainstream media says "This stadium construction project is a good deal!" rather than "Taxpayers are getting ripped off!"

"Tax loopholes for stadium construction!" is logically equivalent to "Higher taxes for everyone who doesn't own a professional sports franchise!" When phrased that way, the tax loophole for stadium construction is obviously immoral. (Of course, all forms of taxation are theft, but that's a separate issue.)

Suppose I don't care about baseball or professional sports. Why should I be forced, via higher taxes, to pay the cost of the stadium?

Due to the tax loophole for stadium construction, *EVERY* stadium can be legitimately called "Bailout Stadium". Citigroup is using Federal bailout money to pay for the naming rights. This is more flagrantly corrupt than usual.

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