NCAA Tax Subsidies Are the Real 'March Madness'

Tax breaks to bring the NCAA Final Four to town aren't worth it.

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UNLV guard Bryce Dejean-Jones shoots against California forwards Richard Solomon and David Kravish during the NCAA Tournament in San Jose, Calif., on March 21, 2013. California won 64-61.

Matthew Mitchell is a senior research fellow at the Mercatus Center at George Mason University. Christopher Koopman is a research assistant at the Mercatus Center.

Not everyone was able to attend this year's NCAA Men's basketball tournament in person, but a lot of taxpayers have helped pay for tickets to the games and might not even realize it.

As the Madness of March winds down with this week's championship games, visions of lucrative professional careers dance in the heads of talented young athletes around the country. Scouts, coaches and owners have their own visions, for any one of these young talents could be the next Kobe or LeBron.

And that makes each player a potential ticket to millions of dollars in public subsidies. Taxpayers, however, should be envisioning a loss; these deals are typically as wasteful as they are scandalous.

The publicly-subsidized exploits of professional teams are well known. But now amateur sports are getting in on the game. Texas, for example, uses a taxpayer-supported trust fund to channel subsidies to various sporting events such as the NCAA's Final Four. Not to be outdone, Indiana has a law on the books exempting the NCAA from state taxes and county admissions taxes for hosting a Final Four in Marion County (Indianapolis).

[See a collection of political cartoons on the budget and deficit.]

Most recently, Missouri enacted a law offering tax breaks to the sponsors of amateur sporting events held in in the state. The law offers refunds to event sponsors of $5 per ticket sold,  for a total cost of up to $3 million per year.

It's safe to say that policymakers had the Final Four in mind when they passed the bill with strong bipartisan support, hoping the influx of tourists and a packed arena would boost the economy. Although Kansas City was selected as one of the hosts for the early rounds of this year's basketball tournament, Missouri politicians felt that their state was falling behind in the amateur sports subsidy battle.

Indeed, these sorts of deals are almost always defended on the grounds that they will pay dividends down the road: Taxpayer support, it is claimed, will revitalize a local economy and maybe even pay for itself through new tax dollars.

The economic evidence, however, does not support this view. Economists Dennis Coates and Brad Humphreys have surveyed the literature and found "a great deal of consistency among economists doing research in this area. That evidence is that sports subsidies cannot be justified on the grounds of local economic development, income growth or job creation, those arguments most frequently used by subsidy advocates."

State politicians should be even more concerned about the economic return they can expect to see from hosting the NCAA basketball tournament. A study by the College of the Holy Cross found that the "economic impact, particularly for the men's tournament, appears to fall short of booster claims of a financial windfall."

[Read the U.S. News Debate: Should NCAA Athletes Be Paid?]

So why do politicians continue to hand out these privileges? One answer is that sports teams are well-connected and well-organized, giving them an inherent lobbying advantage over a multitude of unorganized taxpayers. Another explanation is that people love sports – especially their home team – and politicians are eager to associate themselves with anything popular.

This same explanation accounts for why politicians have gone out of their way in recent years to privilege another popular industry: Film production. The vast majority of states now offer a spate of tax credits, exemptions, and subsidies to production companies that film on location.

Ironically, the two fads recently collided in the form of "Draft Day," a film starring Kevin Costner as an NFL general manager attempting to salvage his team. It was initially slated to be filmed in Buffalo and feature the Bills. But Cleveland offered a better set of tax incentives, so the movie is now going to be shot in Ohio and will center on the Cleveland Browns.

No doubt the film will be a nice Cinderella story. But every Cinderella story has an evil stepmother.

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