The worldwide leader’s taxing hypocrisyIt turns out professional teams and leagues aren’t the only billion-dollar sports entities getting big breaks on their tax bills.
The New York Times reports that ESPN, the self-proclaimed “worldwide leader in sports” whose headquarters are located in Bristol, Connecticut, has received nearly $260 million in state tax breaks and credits over the past decade. According to the Times, the incentives include a $25 million contribution toward the construction of the Digital Center 2, a 193,000-square-foot building set to open in the spring. The boon is the result of a sophisticated lobbying scheme: ESPN has reportedly spent $1.2 million on lobbying expenses since 2007 and counts Connecticut Governor Dannel Malloy and Bristol Mayor Ken Cockayne among its main supporters.
Malloy and Cockayne contend that the economic growth the company generates is integral to Connecticut; they point to the devastating impact ESPN’s departure would have on the local economy. To be sure, ESPN’s benefit to Bristol is undeniable: It is the 25th-largest employer in the state and by far the largest employer in the city. Since 2000, ESPN has spent $1 billion on construction in Bristol, adding more than 2,700 jobs in a state whose workforce has consistently shrunk in the past decade.
The question is whether such tax incentives are necessary to keep ESPN in Bristol. Politicians repeatedly state that these kinds of breaks deter companies from fleeing to other states, but ESPN has never actually threatened to leave Connecticut. Furthermore, the Institute on Taxation and Economic Policy concluded that tax credits don’t give a state any influence over businesses’ behavior when it comes to hiring and investing. Such incentives might actually be a detriment to a local economy by displacing smaller businesses, and in order to pay for incentives, the public services that companies rely on to conduct their day-to-day operations often have to be reduced.
The most glaring aspect of the Times’ report, however, isn’t that the world’s most profitable media company receives tax breaks - it’s the hypocrisy of the entire arrangement. ESPN generates an estimated $6 billion a year on cable subscriptions alone, thanks to channel bundling that effectively charges every subscriber an average of $5.54 a month whether or not he or she watches the network. Forbes reports that fewer than 5 percent of cable households watch ESPN, yet the channel is available in 100 million homes. ESPN and cable providers thus levy a kind of tax on the majority of non-sports-watching homes in order to subsidize those of us who actually watch it.
Even worse, ESPN earns these monstrous revenues while condemning other organizations for enjoying the exact same benefits. Back in June, an ESPN.com editorial took on the National Football League’s ludicrous legal status as a tax-exempt nonprofit, noting the potential loss of revenue at the federal, state and city levels. And just two weeks ago, ESPN made waves with an in-depth “Outside the Lines” report on the PGA Tour’s nonprofit business model, which has resulted in nearly $200 million in federal tax exemptions over the last two decades.
The most recent piece acknowledged the group’s charitable contributions but questioned how much of it actually serves needy groups and whether those benefits outweigh the cost to taxpayers. Bristol residents should probably start to question their local politicians the next time they want to further shift the tax burden away from the Worldwide Leader.
By Kavitha A. Davidson Bloomberg View sports columnist