Kelo Could Ban Takings for Stadiums

Kelo Could Ban Takings for Stadiums
July 1, 2005

Technically, the eminent domain case before the U.S. Supreme Court, Kelo v. New London, has nothing to do with sports. But sports teams have long used eminent domain to acquire property at costs far below market value.

The high court is hearing a lawsuit involving a New London, Connecticut real estate project, in which the city agreed to tear down a neighborhood so developers could build a condominium complex and office park. No claim of blight was involved.

The city said the development was a "public use," as required by the U.S. and Connecticut constitutions, because it would generate new tax revenue. Several property owners refused to sell. The Supreme Court will decide whether they have to.



Issue Rarely Considered

The Court has rarely visited the eminent domain issue. In 1954 the justices ruled a neighborhood deemed "blighted" could be torn down and redeveloped if the local government had a better use for it. There have been several more decisions since then, but most have been very narrow in scope.

Blight is no longer the issue; the question now is simply whether the deal helps the local economy in some way.

Sports economists estimate that half of the post-1990 stadium and arena construction has involved eminent domain--and even when it wasn't invoked, it was understood condemnation could be a last resort if the teams encountered stubborn landowners.



George W. Bush Profited

One of the most famous eminent domain cases involved the Cowboys' future home of Arlington, where baseball's Texas Rangers play. At the time, future President George W. Bush was an owner.

In 1991, the team convinced local voters to approve a tax increase that helped build a new $191 million stadium. The city of Arlington used eminent domain to acquire the property from hundreds of private owners, claiming the stadium was a "public use" just like highways, schools, and government buildings.

Several property owners were lowballed, and court decisions increased their final take. The compensation for one 13-acre plot was increased from $877,000 to $5 million, for example. The city, not the team, was held responsible for making the larger payments.

The stadium clearly benefitted the Rangers' owners more than anyone else. Bush turned his initial $600,000 investment into $15 million when the team was sold in 1999. But it has produced little of the promised economic benefit to Arlington, and there has never been a real "public use" factor aside from baseball fans' paying their money to see games.



Few Benefits Demonstrated

In resolving the Connecticut case, the Supreme Court is expected to decide whether the promise of local economic benefits is enough to justify the use of eminent domain, and whether local governments have to prove such benefits are likely. If the Court requires evidence, stadium boosters will be in serious trouble.

During the past 15 years, economists such as Lake Forest College's Robert Baade, Pepperdine's Dean Baim, Stanford's Roger Noll, Smith College's Andrew Zimbalist, and Cleveland State University's Mark Rosentraub repeatedly have shot down the claim that new stadiums benefit local economies.

Rosentraub estimated Arlington would lose roughly $235 million over 30 years as a result of the new Cowboys stadium, a far cry from the city's (and team's) projected $7 billion gain over the same period. The taxes raised for the stadium would actually take money out of the local economy, Rosentraub found.

Local businesses tend to be hurt rather than benefitted, Rosentraub has found, because teams attempt to control almost all of their fans' entertainment spending, including shopping and dining. That leaves little room for the promised spillover growth around the stadium.

Without a spillover effect on the neighborhood, owners and cities would have to scramble to justify using eminent domain.

-- Daniel McGraw