Keeping the Chicago Cubs Spring Training Facility in Arizona

by John Michael Ekblad March 15 2010, 09:16

I.                   Introduction

The Chicago Cubs are the highest drawing baseball team in the Arizona Cactus League  [1] and earn nearly $52 million for the state of Arizona annually.  [2]  The team’s current deal with Mesa, Arizona allows the Cubs to buy out of its agreement to play in Mesa after 2012.  [3]  As a result, the Cubs have received pitches from groups in both Arizona and Florida trying to persuade them to choose their state for the site of their new spring training facility.  In January, the Cubs and the city of Mesa, Arizona signed a memorandum of understanding which gave the city the exclusive right to negotiate an agreement for a new Spring Training facility for the Cubs.  [4]  Initially, an Arizona House committee proposed legislation that would approve a $1 surcharge on auto rentals in the Phoenix area and an 8 percent surcharge on the tickets to all Cactus League games in order to fund the new facility.  [5]  In the current  economic times, the idea of taxing citizens to build a baseball stadium may strike out in the minds of citizens in Arizona.  However, proponents for the project will likely argue that as other tax incentives that attract businesses help to fuel local economies and create jobs, keeping the Cubs in Mesa, could do the same thing.  [6]  This raises two significant issues.  First, do stadiums actually have these positive results for local economies or do they benefit another party?  And second, in light of recent case law, is a tax incentive for the Cubs to stay in Arizona a constitutional option?

II.                Background 

The Chicago Cubs have had their spring training facilities in Arizona since the 1950s and at the current location since 1979.  [7]  With their current deal ending in 2012, and new ownership in place, the Cubs are looking for 120 contiguous acres, a stadium with seating capacity for at least 15,000, six practice fields, sufficient parking, and a training complex that could be used eleven months out of the year.  [8]  Major League Baseball has two spring training leagues, one in Arizona and another in Florida.  Arizona has proposed a publicly funded plan and Florida has proposed a privately funded plan.  As mentioned, the Cubs are the highest drawing team in Arizona, raising an estimated $52 million per year, compared with the Boston Red Sox, one of Florida’s most popular teams, that draws only $24 million a year for Florida.  [9]

A website dedicated to bringing the Cubs to Florida, floridacubs.com suggests that brining the Cubs to Collier County, Florida would increase tourism, add revenue to local businesses, improve property values, and be a “priceless community asset.”  [10]  The privately funded training facilities would be located in “Wrigley Village,” which would have beach access and room for hotels and restaurants as well.  [11]  Craig Bouchard, who is part of the private group trying to persuade the Cubs to call Collier County their new spring training home, originally thought the idea was a long shot and that it was not possible.  [12]  Now however, it seems like it could be very possible, or at least now Arizona has legitimate competition.   

The idea of a private group and a local government competing to finance a stadium is a new phenomenon as public financing for professional sports stadiums have not always been the norm.  [13]  However, since roughly the 1950’s many stadiums have received funding from taxpayers.  [14]  As previously mentioned, politicians have justified public funding for stadiums because of the economic benefits a new stadium are commonly thought to create.  [15]  Two studies of the public benefits of stadium projects seemed to show mixed results based on where the facility is located.  [16]  However, generally the studies concluded that constructing sports facilities do not produce the expected economic benefits to the cities.  [17]  The benefits, however, can clearly be felt by the owners.  The owners of the team increase the value in their team when they can generate net revenues.  [18]  It is not hard then to see that a new stadium would increase the revenues for the owners.  However, without proof that new stadiums benefit the public, it may be hard to argue that private owners should be the sole party reaping the benefit from the public’s financing for their stadium.  Although sports fans may appreciate the nicer stadiums, people who are not sports fans may find no benefit. 

In addition to changes in the way stadiums have been funded, a recent court decision has given a new perspective on the way state and local governments may encourage companies to increase investment in their jurisdiction.  The Sixth Circuit in Cuno v. Daimlerchrysler, Inc., held that the State of Ohio’s investment tax credit was unconstitutional because it attempted to interfere with interstate commerce.  [19]  The investment tax credit in Cuno, provided a credit of 13.5 percent against the state corporate franchise tax for certain investments.  [20]   The tax credit unfairly discriminated against interstate commerce because it pressured companies to investing in Ohio. [21]  Specifically it held this way because it provided for differential treatment of in-state and out-of-state economic interests that benefits in-state interests over out-of-state interests.  [22]  Prior to this decision, an economic-development benefit granted to a business or industry, in the form of a tax credit, granted to a business was not questioned on federal constitutional grounds.  [23]  A practice that once seemed completely acceptable has been called into question.  Nearly every state has enacted tax incentives to attract business to their state.  [24]  However, the Sixth Circuit’s decision seems to have put a “cloud over billions of dollars of tax incentives.”  [25] 

III.             Analysis

In considering whether to finalize a deal with the Chicago Cubs, Arizona should consider if the project will be beneficial to its citizens and then if the proposed tax is a feasible option to fund the project.  First, the Arizona legislature is in a better position than other state and local governments to determine whether building a new spring training facility would be beneficial to its citizens, because the Cubs have played in Arizona in the past.  The current proposed memorandum of understanding, requires the Cubs to acquire the land to build the stadium and to maintain and operate the stadium, parking, and public access roads surrounding the stadium.  [26]  Also, if the construction costs exceed $84 million, the Cubs would cover the excess.  [27]  Arizona, therefore need only to secure legislation to finance the project, and compare these costs to expected yearly revenue.  If it is anything close to the estimated $52 million a year proposed, it would not take long to earn back the money spent.   As previously mentioned Arizona could determine how much revenue the Cubs would generate and then make its decision on how much to invest in keeping the Cubs in Arizona.  This decision may also be influenced by how much the private group from Florida, is willing to invest in pulling the Cubs out of Arizona.  Currently, the exact details of what the private group would offer the Cubs are not as clear as Arizona’s proposal.  If the current memorandum of understanding does not result in a deal, Florida may be able to provide an even better deal.  In Florida, however, the deal would not be at the expense of public taxpayers.

While Arizona may be able to determine if their proposal would be profitable, as a result of the Floridian proposal, it may not be the most profitable.  When multiple jurisdictions are making bids for a business, industry, or in this case a team, the value received by the chosen jurisdiction may be the victim of a “race to the bottom.”  This situation provides limited opportunities for state and local governments to encourage baseball teams to locate their spring training facilities in Arizona or Florida, because teams may only choose between two states.  Also, as previously mentioned, the private group from Florida  thought that the Cubs may not have even thought to leave and intriguing Florida to enter the picture could have been intended to just get the Cubs a better deal from Arizona.  However, when fifty states are competing for a company to carry on business in their state, there may be far more bidders.  This bidding could greatly reduce the benefits citizens reap as states compete to give companies better and better deals.  This situation is likely to appear in areas where teams can choose between a greater numbers of locations.  States may want to work together to prevent the possible abuse by sports teams or businesses that may occur as a result of state and local governments encouraging teams or businesses to relocate.  While this suggestion may have less applicability in the sports world, it could have a greater impact in preventing businesses from taking advantage of state and local governments to provide them an unreasonable deal for its citizens.

With regards to the question of whether or not funding a new stadium through tax dollars would violate the Constitution, it appears as though, like Ohio, Arizona is pressuring a company to do business in its state by giving them a deal they may not be able to get by not investing in Arizona.   However, with regards to the Cubs efforts to build a spring training facility in Arizona versus the tax incentive given to Daimlerchrysler in Ohio, it is important to note some differences.  The tax credit offered in Ohio would reduce a company’s tax liability.  While in Arizona, the taxes would be collected from consumers.  Unlike the credit in Ohio, the impact would be felt by consumers rather than businesses.  Similarly, the Cubs are also not necessarily receiving any tax benefit at all, and are instead just receiving a benefit resulting from the tax.  As the Cubs are the only business offered this benefit, it makes it even less possible that the tax could force other companies to do business in Arizona.  As a result, it does not appear as though it would favor businesses located inside Arizona over businesses located outside of Arizona. 

While the tax itself may not favor in-state companies over companies outside of Arizona, it could possibly be argued that such a tax would favor its own citizens.  This may be the case because the impact of a tax on auto rentals would be shared disproportionately by people visiting Arizona from outside of the state.  The added cost to ticket prices would be less likely to have the same impact.  Arizona residents and all others to attend the games would share the cost to attend any spring training game.  A tax that is primarily felt by residents of Arizona would not raise the same discriminatory constitutional issues raised in Cuno.  A state decision that discriminates against its own citizens is better challenged by electing new legislators.  Additionally, given that the tax would likely result in significant revenue exceeding the amount of tax charge to its citizens, it appears that the only better way would be to find a plan that does not involve a tax at all.  Given, the net beneficial impact of an increase in ticket price, this appears to be a very good option for Arizona to fund a new Cubs spring training facility. 

IV.             Recommendation

The incentive of building a spring training facility for the Chicago Cubs does not appear to have the same ill effects that other tax incentives have when encouraging businesses to do business in a state.  Arizona can also make a more informed decision with regards to convincing the Chicago Cubs to stay in whether or not it will be beneficial to its citizens.  To further avoid the possibility that the tax be determined to be unconstitutional, Arizona should also consider raising all of the funds necessary by its increase in ticket prices.  This will also have the effect of putting the burden on those most likely to make use of the new facility.  As public funding for a recreational purpose is not at the top of everyone’s list right now, the best option for Arizona would be to create a solution that does not require public funding.  However if this is not possible increases in prices to see a popular team should be incurred by those likely to enjoy the improvements. 

V.                Conclusion

Arizona should build the Chicago Cubs a new spring training facility as doing so does not appear likely to have the negative impacts that other tax incentives for businesses or poor decisions to build stadiums in other places have had.

[1] Carrie Muskrat, Clubs, MLB Prefer Different Cubs Financing, MLB.com, Feb. 18, 2010, available at http://mlb.mlb.com/news/article.jsp?ymd=20100218&content_id=8089818&vkey=news_chc&fext=.jsp&c_id=chc&partnerId=rss_chc.

[2] Carrie Muskrat, Naples Serious Player in Wooing Cubs, MLB.com Nov. 11, 2009, available at http://chicago.cubs.mlb.com/news/article.jsp?ymd=20091111&content_id=7654274&vkey=news_chc&fext=.jsp&c_id=chc.

[3] Id.

[4] Muskrat, supra note 1.

[5] Id.

[6] Susan Gaffney & Barrie Tabin Berger, Protecting Tax Exempt Bonds and Tax Incentives: A Recent Appeals Court Decision and the Ongoing, Entrepreneur,  Aug. 2005, available at http://www.entrepreneur.com/tradejournals/article/135564957.html.

[7] Mesa v. Naples – Cubs Spring Training Battle Alive & Kicking, Mycubstoday.com Nov. 1, 2009, available at http://www.mycubstoday.com/2009/11/01/mesa-v-naples-cubs-spring-training-battle-alive-kicking.

[8] Id.

[9] Update: Future Spring Training Site – Arizona v. Florida, Mycubstoday.com Jan. 14, 2010, available at http://www.mycubstoday.com/2010/01/14/update-future-spring-training-site-arizona-v-florida.

[10] Bringing the Cubs to Florida – Announcements, Floridacubs.com, available at http://floridacubs.com/dnnuke/Announcements.aspx.

[11] Muskrat, supra note 2.

[12] Muskrat, supra note 2.

[13] Gregory W. Fox,Note,  Public Finance and the West Side Stadium:  The Future of Stadium Subsidies in New York, 71 Brooklyn L. Rev. 477, 478 (2005).

[14] Id.

[15] Gaffney & Berger, supra note 4.

[16] Mildred W. Robinson, Public Finance of Sports Stadia:  Controversial But Permissible … Time for Federal Income Tax Relief for State and Local Taxpayers, 1 Va. Sports & Ent. L.J. 135, 139 (2002).

[17] Id.

[18] Id.

[19] Cuno v. Daimlerchrysler, 386 F.3d 738, (6th Cir. 2004).

[20] Id at 741.

[21] Id at 748.

[22]  Kristen E. Hickman & Sarah L. Bunce, Symposium:  Daimlerchrysler v. Cuno and the Constitutionality of State Tax Incentives for Economic Development:  Foreword:  Daimlerchrysler v. Cuno, 4. Geo. J.L. & Pub. Pol’y 15, 22 (2006).

[23] Gregory A. Castanias, National Movement Against Economic-Development Incentives Makes Inroads in the Sixth Circuit and Raises Questions About Similar Incentives Elsewhere, Jones Day (Jones Day, Washington, D.C.),  Feb.2005, available at http://www.jonesday.com/newsknowledge/publicationdetail.aspx?publication=1089.

[24] Walter Hellerstein, Kirk J. Stark, John A. Swain, and Joan M. Youngman, State and Local Taxation:  Cases and Materials 162 (2009).

[25] Id. 

[26] Cubs Mulling Over Proposal from Mesa, Arizona for Future Spring Training Site, Mycubstoday.com Jan. 23, 2010, available at http://www.mycubstoday.com/2010/01/23/cubs-mulling-over-proposal-from-mesa-arizona-for-future-spring-training-site.

[27] Id.

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