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Wednesday, April 1, 1998

The NFL Oilers: A Case Study in Corporate Welfare

How Houston's Struggle against Stadium Subsidies Failed

After more than three-and-a-half decades in the city of Houston, the National Football League’s Oilers kicked off this past season in Tennessee. The Tennessee Oilers are the result of a traumatic corporate welfare struggle in Houston, one that has left all but dead the political will to fight government handouts to million-dollar team owners and players.

Oilers owner Bud Adams originally was a bold football entrepreneur. His team was a 1960 charter member in the upstart American Football League, which was set up to offer a direct challenge to the well-established NFL. Adams named the team for the business in which he earned his fortune, and the Oilers took two of the first three AFL titles.

In 1965, Adams moved the Oilers into the new taxpayer-financed, $35 million Eighth Wonder of the World, the Houston Astrodome. He got a good taste of corporate welfare early on in his sports ownership career—something probably quite soothing compared with the rough-and-tumble oil business. And it apparently left him with a taste for more.

Over the next three decades, Adams would venture to tap his hometown taxpayers twice more. In 1987, he requested $67 million-worth of stadium upgrades to the Astrodome—including new artificial turf, 10,000 more seats, and 65 new luxury boxes. Adams needed negotiating leverage, so he drew the most formidable weapon in any business executive’s arsenal: he threatened to move his team—in this case to Jacksonville, Florida. Adams got what he wanted from Houston officials through a property-tax hike and a doubling of the hotel tax.

The NFL’s “best” stadium—as Adams referred to the upgraded Astrodome—did not stay that way for very long. In 1993, Adams began tossing around the idea of a brand new dome. His proposed $235-million Ninth Wonder of the World would come with the latest in stadium accouterments, including more of the ever-critical luxury box suites. Those boxes generate big dollars that do not have to be shared with other teams under the NFL’s revenue-sharing plan. They are in fact a huge catalyst for the push in recent years for new stadiums, ballparks, and arenas by many professional teams.

Adams’s plan also called for all the seats from floor to ceiling to be reconfigured to fit not just football, but also hockey, basketball, convention, and concert floor plans. (It’s amazing the ideas one can come up with when spending somebody else’s money.) Although Adams offered to put up $75 million for this new dome, taxpayers would still be called on to sacrifice $160 million more.

As things generally go in the corporate welfare story, this is the place where politicians usually cave in to team owners. However, then-mayor Bob Lanier (no relation to the former NBA star) reacted rather coolly to the Oilers’ demands.

The Mayor Refuses

Lanier first declared that property taxes would not be used for any new sports facilities. Then, buttressed by polls in early 1994 showing that anywhere from 56 percent to 71 percent of the public thought the taxpayers should not finance a new dome for the Oilers, Lanier argued against any public funding. (Houston’s resolve against the Oilers may have had something to do with the team’s growing reputation as choke artists. In a 1993 playoff game, the Oilers blew a 35-3 halftime lead to lose to the Buffalo Bills—one of the greatest football collapses of all time.)

Support from fellow team owners in Houston couldn’t be lined up either. Adams could not get the National Basketball Association’s Houston Rockets—playing in the city-owned Summit—interested in his deal as a co-tenant of the proposed facility, and Astros’ owner Drayton McLane also gave it a thumbs down.

Mayor Lanier stuck by his refusal to put tax money into a new stadium. However, other taxpayer-funded schemes started to float about, like a $90-million upgrade for the Astrodome and $30 million for The Summit.

NFL Commissioner Paul Tagliabue came to town to aid Adams’s quest in mid-1994. In recent years, a major part of Tagliabue’s job has been to travel to cities where teams want the taxpayers to pay for new stadiums and to offer both carrots and sticks to state and local governments. He arrived in Houston promising that the city would host the Super Bowl one day if a new stadium was built for the Oilers.

Amazingly, though, Lanier’s resolve only strengthened. He declared that he would not go along with “taking Joe Sixpack’s money and putting it into supporting a stadium . . . for owners with $100 million assets and players making $1-million-plus on salary.” The editorial page of the now-defunct Houston Post even chimed in with some down-home common sense: “If it is a good deal, private enterprise will do it.”

Confronted by this unprecedented opposition, Adams once again drew the ultimate weapon: the threat of a move from the city. First, he pitted nearby county against county in a bid for a new stadium. Then, for good measure, the Oilers commissioned a study from a major accounting firm—the kind of study that ignores basic principles of economics, the failure of government industrial policy, and the efficiency of the private sector—which asserted that a new dome for the Oilers would be worth $20 million annually to Houston. Still, none of it turned the tide in Adams’s favor.

Nashville Woos the Oilers

So, in August 1995, he opened negotiations with the city of Nashville. Unlike Houston, Nashville and the state of Tennessee had wooed Adams. The city had long wanted to be “big league.” Mayor Phil Bredesen had already built a new hockey arena without a National Hockey League tenant; so he stood more than willing to build a football stadium for an actual NFL team. And Tennessee Governor Don Sundquist announced that state taxpayers also would be tapped to help bring the Oilers to Nashville.

Back in Houston, Lanier started to crack. He offered a deal to build an open-air stadium for Adams. But Adams decided it was too little too late, and besides, it supposedly was too hot to play outside in Houston.

A deal between the Oilers and Nashville was announced in November 1995. The stadium would seat 67,000, with 120 luxury suites and 9,600 premium seats. Adams would not only not have to lay out a dime to build the new facility, but he would also receive a $28 million relocation fee and garner 100 percent of stadium-related revenues. The state would kick in $55 million in construction bonds and $12 million more for road improvements. Nashville would fork over $144 million and had to guarantee $70 million in net sales of personal seat licenses, giving fans the option to buy tickets.

One hurdle remained, however: against the mayor’s wishes, local stadium opponents gathered enough signatures to require a referendum on the city package. Big dollars poured into the pro-stadium “Yes for Nashville” campaign—outspending the opposition by about 16 to 1. Commissioner Tagliabue naturally stopped by to give support. The resolution passed with 59 percent of the vote.

Meanwhile, the Oilers had a couple of years left on their lease in the Astrodome, and Adams promised to stay and play out those years. But after fewer than 21,000 fans attended the last three games of the 1996 season, the Oilers wanted out. (A few days prior to the Nashville vote, a save-the-Oilers rally in Houston drew fewer than 50 people.) Adams negotiated a buyout deal.

Not long after the Nashville vote, Tagliabue met with Houston officials and sang a familiar song. Houston could get a new NFL team—if it built a new stadium or upgraded the Astrodome. Astros owner Drayton McLane talked about selling his baseball team, claiming a string of annual losses since he acquired the club. And Houston’s lone champions—the Rockets—made noises about playing in an arena far glitzier and more profitable than The Summit (recently renamed the Compaq Center).

The Mayor Caves In

Apparently, this was all too much for Mayor Lanier. His rhetoric about taking money from Joe Sixpack gave way to defeatism. He noted that “the three leagues are monopolies and they’re behaving logically for monopolies.” He and Harris County officials announced the formation of a commission to study the possibility of building new sports facilities. This is the equivalent of establishing a bipartisan commission in Washington, D.C., to deal with Social Security or Medicare. It provides cover. Predictably, the commission came back with the recommendation that Houston build new facilities for baseball and basketball, and upgrade the Astrodome for football. Estimated price: $625 million.

By September 1996, a deal was consummated with the baseball Astros. A 42,000-seat ballpark, with a retractable roof and 66 luxury suites, would be built for about $240 million, of which taxpayers would pick up $180 million through rental car, parking, sales, and liquor taxes. Lanier explained his surrender: “If people want professional sports in this city, the reality is their presence requires certain public participation.” The Astros’ owner offered one of the standard justifications for stadium subsidies: “If we’re going to compete with teams like Atlanta, we need to have a stadium like this.”

A referendum barely (51 percent) approved the Astros’ new ballpark, as well as $200 million in Astrodome upgrades, just in case the NFL came back to town. Houston had fought a valiant struggle against corporate welfare, but it finally gave in—big time.

Early in 1997, Lanier proposed a new arena to be shared by the Rockets and a minor-league hockey team. For a $200 million facility, the teams would be asked to chip in only about $75 million. The latest talk around town is about a completely new stadium for an NFL expansion team.

Meanwhile, Texas state officials rolled out the red carpet for the pro sports corporate welfare juggernaut. Governor George W. Bush signed legislation allowing localities—after voter approval—to set up sports authorities that could impose a county-wide 2 percent hotel tax, a 5 percent rental car tax, and taxes on parking and tickets, and to use sales tax revenues collected at facilities, all to pad the bottom lines of team owners and boost the salaries of players.

To the very end, the Oilers’ Adams never stopped thinking out loud about his beloved Houston. In a strangely sympathetic piece in late 1996, which appeared in the Houston Chronicle, Adams was asked what he would do over. “I’d let [Astros owner] Drayton go first. Then he’d be the one moving and I’d be getting a new stadium.”

At a Nashville rally in November 1995 celebrating the announcement of the Oilers’ move, Adams declared: “When Bud Adams tells you we will come if you live up to your end of the bargain, that’s binding.” Yet, among most team owners today, to “live up to your end of the bargain” isn’t what it used to be. Now it means, “as long as you keep forking over taxpayer subsidies, then we’ll stay put. Otherwise, we’re outta here.”

Some small, short-term justice, though, has been dispensed. The Oilers’ attendance in the 1997 season was just as bad as in their final days in Houston. Adams persists in his quest for corporate welfare; he reportedly complains that the team’s new training site is too small. Of course, he demands a new one.

In the end, the guilt lies with politicians willing to dole out sports pork in one form or another. In June 1997, Nashville’s Mayor Bredesen admitted the tenuous ground upon which stadium subsidies rest: “I can’t justify building a football stadium on direct economic impact. The professors who make a living pooh-poohing that are right. But there are a lot of intangible benefits that make it more than easy to do.”

Such sentiments by politicians bent on tapping the “intangible benefits” of sports are a long way from the political sensibilities of a man like Calvin Coolidge, who as president once said: “The collection of any taxes which are not absolutely required, which do not beyond reasonable doubt contribute to the public welfare, is only a species of legalized larceny.”

Today, legalized larceny on behalf of million-dollar athletes and owners is all the rage. And as the performance of Houston—a generally free-enterprise city without, for example, zoning laws—and its former mayor show, resisting a man in an athletic uniform is hard to do.

  • Raymond J. Keating is an author and serves as Chief Economist with the Small Business & Entrepreneurship Council.