Economists Say Taxpayer-Subsidized Stadiums Are a Bad Idea. What Makes Downtown South Any Different?

The crowd at last Tuesday’s North Carolina Football Club stadium proposal unveiling was a far cry from the frenetic #919toMLS rally of July 2017. There were no parades, no fanfare, and no (visible) diehard supporters among the thirty or so journalists gathered on The Dillon’s ninth-floor Sky Terrace.

Instead, Dillon developer John Kane, NCFC owner Steve Malik, and TradeMark Properties founder and CEO Billie Redmond projected an air of quiet confidence.

The details of their $180 million stadium proposal—including its South Raleigh location, funding plans, and colorful renderings—had already leaked. So had the fact that the stadium would be but a piece of a massive $1.9 billion mixed-use district—Downtown South—which would also include 1.6 million square feet of office space, 1,200 hotel rooms, 1,750 residential units, and 125,000 square feet of office space.

Inviting the assembled reporters to look out over the terrace, from the bustle of the Warehouse District toward the site he wants to turn into Raleigh’s next big thing, Kane told them, “It’s going to be a game-changer for that part of our city.”

But he wants the city’s help.

Most of the project—the mixed-use aspect—will be privately funded. But for the stadium itself, the developers are seeking $390 million in Wake County and Raleigh hospitality taxes over the next thirty years to finance construction, maintenance, and debt service. In exchange, they say, Downtown South will generate $3.8 billion in economic activity for the county over the next fifteen years.

However: “This project does not happen without a catalyst,” Malik said.

But as catalysts go, taxpayer-subsidized sports stadiums aren’t very good ones. Economists are nearly unified in the belief that they don’t produce the promised bang for taxpayers’ buck. A 2017 University of Chicago survey found that only 4 percent of economists on the U.S. Economic Experts Panel believe the benefits of publicly funded stadium construction outweigh the costs. Eighty-three percent don’t.

The fundamental problem is that stadiums don’t generate new economic activity—and the promises made by stadium-booster-funded impact studies should be viewed skeptically. As Holy Cross economist and stadium expert Victor Matheson told The Atlantic in 2012: “Take whatever number the sports promoter says, take it and move the decimal one place to the left. Divide it by ten, and that’s a pretty good estimate of the actual economic impact.”

Instead, stadiums suck in limited entertainment dollars that would already be spent elsewhere in the city: Your family, with its finite budget, buys tickets to an NCFC match instead of dining at a local restaurant. The total amount of economic activity is the same, it’s just distributed differently.

And with professional sports franchises, economists also worry about the problem of “leakage”—money leaving town after being paid to players, owners, and the league itself.

That raises another issue: NCFC isn’t part of MLS—and there’s no guarantee it will be. For the last two seasons, playing in the second-tier USL Championship, NCFC has averaged a little over forty-five hundred fans at its seventeen annual home matches in Cary; its sister team, NC Courage, which plays in the NWSL, averages about five thousand fans in its twelve home matches a year.

Even doubling those numbers would only fill half of a twenty-thousand-seat stadium twenty-nine days a year (plus playoff matches). The stadium would also host special events, such as concerts. But here, too, it would be moving money around: The band that fills a twenty-thousand-seat venue would otherwise be playing Walnut Creek or PNC Arena.

In 2017, when Kane and Malik made a stadium pitch for a different part of downtown Raleigh, an MLS bid was front and center; this time, it’s not. Last week, Malik stressed that he’s fully invested regardless of whether his team makes it to the top level of American soccer. He sees Downtown South as an opportunity to revitalize an underdeveloped part of the city.

Depending on your perspective, that’s either a blessing or, potentially, a curse.

It’s a blessing because the mixed-use aspect—the hotels, apartments, and office space—separates the project from the standalone taxpayer-funded stadiums that economists abhor. The stadium itself might not boost the local economy, but the other pieces could, and having them surround a stadium gives the development a sense of place.

“I love the proposal because it’s more than just a stadium,” says former Raleigh City Council member and current mayoral candidate Mary-Ann Baldwin. “It opens up a lot of opportunity to create a southern gateway for our city.” (Former Wake County Commissioner Caroline Sullivan, another mayoral aspirant, calls Downtown South an “exciting project with many positives.”)

The curse is that this is, in fact, an underdeveloped part of the city, and dropping a $2 billion development bomb could add to the city’s affordability crisis. Indeed, part of the developers’ calculus is that the site is in what’s deemed an Opportunity Zone, making them eligible for federal tax benefits for investing in low-income areas.

The developers point out that there are “no current residential uses” on the Downtown South site. The project wouldn’t displace anyone—directly, at least. Tax records indicate that there are at least three single-family housing units on the site, but none appear occupied. The rest of the property—which Kane says is under contract—houses businesses including a flooring outlet, a CrossFit studio, a coffee shop, the headquarters for the North Carolina Rural Electrification Authority, and dirt lots filled with old cars. (The Downtown South acquisition rather conspicuously excludes an adjoining property currently used as a soup kitchen.) 

Indirectly, however, Downtown South will have a much larger footprint. 

Just on the other side of I-40 are neighborhoods that include modestly priced single-family homes and multi-family units. The census tract that encompasses both the stadium and these neighborhoods is nearly 60 percent minority. Its median family income is less than half that of the metro area; 28 percent of residents live below the poverty line. More than half of its housing units are rentals. 

Once Downtown South goes up, those land values are likely to skyrocket—and it’s possible the people who live there now might no longer be able to do so. 

“The only way you can say development there would not cause an increase in property values around it is to build nothing,” says city council member Corey Branch. 

The developers say workforce and affordable housing have been part of the plan from the beginning—though they haven’t yet detailed out what those plans look like. Malik says they’ll also guarantee a percentage of minority contracts and minority labor on stadium construction. 

But they need local officials to act fast. 

On June 19, the city and county managers presented their recommendations for how to spend $55 million generated by this year’s hotel and food and beverage taxes, referred to as interlocal funds. By law, that money is set aside for “arts, culture, sports, and convention facilities.” It can’t be used for roads or schools. Since they were established in 1991, interlocal funds have paid for the construction of the Raleigh Convention Center, the renovation of the N.C. Museum of Art, and helped build PNC Arena, home to the Carolina Hurricanes. 

Baldwin says the stadium fits perfectly into this mold. “The hotel industry agreed to tax themselves, as did the food and beverage industry, as long as the money was used to fund tourism projects,” she says. “This definitely falls in that category.”

In January, Kane, Malik, and Redmond made a more skeletal pitch for a “new Downtown Entertainment and Sports Complex,” which they assured would “drive tourism and positive economic impacts.” But the local government managers didn’t include it among their top choices. Those were a PNC enhancement, an indoor youth sports facility, and various Convention Center projects. 

Stadium developers were told to compete for a share of $42.1 million designated for “medium projects” over the next five years. County officials say it’s unlikely those funds would be awarded to any single project. But even if they were, Kane says, that wouldn’t be enough to fund the stadium, and without the stadium, the whole project would tank.

“It is a little concerning,” Malik says. “But the way we do the math, there are plenty of resources available.”

The developers point out that the final decision lies with the city council and county commissioners, who will vote to spend the next cycle of interlocal funds in August or September. When they do, they’ll be committing to projects for the next several years. If the stadium isn’t one of them, it will be out of the running for this pot of money for the near future. Hence, Downtown South’s urgency.

The developers still have time to rally public support. On that score, so far, so good.

“We have not yet received a formal briefing on the project,” says Wake County Commissioner Matt Calabria. “We have certainly heard from a number of constituents, especially those in the southern Raleigh area. Most of the emails we’ve gotten so far have been in favor of it.”

Contact editorial assistant Cole Villena at cvillena@indyweek.com. 

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