Economic revitalization is the chief rationale provided by backers of a $260 million taxpayer subsidy for the new Detroit Red Wings arena. The economic impact of Michigan’s favorite hockey team, however, is vastly exaggerated.
In fact, if this economic logic justifies subsidies, the state would be better off sending tax dollars to McDonald’s rather than to the Red Wings.
According to Forbes, the Detroit Red Wings earned $96 million in revenue in 2013. On the surface, this appears to be a substantial sum of money. However, based on the national average of $2.6 million in annual revenue for each McDonald’s restaurant, the 545 McDonald’s restaurants in Michigan amassed $1.4 billion in revenue. McDonald’s is 14.5 times more important to Michigan’s economy than the Detroit Red Wings.
One might argue that this comparison is inappropriate since the stated goal of the new arena is to revitalize Detroit, not necessarily the entire state. The counter argument to this is that since the money is coming from the pockets of taxpayers statewide (including Minnesota Wild fans 700 miles away in Ironwood, Mich.), the statewide economic impact needs to be considered.
But even supposing state taxpayers should subsidize a project that primarily generates local economic benefits, subsidizing McDonald’s would still be a better use of the money.
The 186 McDonald’s in the Metro Detroit area (according to Yellowpages.com), generate almost $500 million in revenue per year. Thus, just McDonald’s restaurants in and around Detroit are five times more important to the Metro Detroit economy than the Red Wings.
Only by limiting this analysis to the 29 McDonald’s restaurants in the city of Detroit, could one make the case that the Red Wings are more important to the city than the fast food chain. But even then, one should keep in mind that the vast majority of the revenue that the Red Wings generate goes to players and owners, who may or may not create the type of economic ripple effects in Detroit or the state that subsidy backers assume. These individuals do not reside in the city limits and thus the revenue generated by the Red Wings largely leaves the city.
The possible exception is the employees who work as vendors and other low-wage service jobs. But McDonald’s employs these types of workers too, and all of its employees will live and spend money in Detroit’s economy.
Even though handing in excess of $260 million to McDonald’s would likely generate more positive economic effects for the state than subsidizing a hockey arena in Detroit, we can probably all agree that this would be a bad idea. But considering this, supporters of subsidizing the new Red Wings stadium need to provide a better justification for why their idea is any better.
The answer is, it's not. Ultimately, corporate welfare has no justification, no matter who the money goes to.
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