Madison Square Garden’s Tax Exemption Is a Disservice to NYC

There’s a tacit threat when negotiations with sports venue owners come up: If a plush tax exemption deal isn’t on the table, they’ll leave and take all that precious tax revenue with them.

Madison Square Garden, sitting atop Penn Station in Manhattan, is getting its special occupancy permit reviewed by the city council. The iconic arena has been in the news for facial recognition systems seemingly installed so they can kick out lawyers from firms that have litigated against them. If things get tense, and the arena threatens to move across the Hudson River to New Jersey, there’s a bit of information to keep in mind: MSG hasn’t paid property tax since 1982.

The idea is that in return for investment of public funds—either in construction of the facility or in property tax relief on it—the venue will create jobs and other benefits related to bringing a bunch of people into a big room to eat hot dogs and watch a ball or puck get chased. But is it a good deal for the public? The obvious answer is no.

MSG and every other sports complex that gets sweetheart tax deals should be made to pay its fair share. These are massive buildings that take up huge swaths of prime real estate in what frequently is the heart of a city. They increase traffic, use government resources, and burden all aspects of city infrastructure. The idea that these hulking arenas aren’t paying property tax while an individual in a 500-square-foot apartment across the street is doing so through rent is absolute madness.

Of course, the problem is that teams really do move cities. And for every municipality that would hold MSG to its property tax bill, there’s another that would give up the property tax for the bragging rights of hosting a premiere sports and entertainment venue. As with tax evasion more generally, the project doesn’t really work unless all governments hold the line.

Madison Square Garden stands in Manhattan at dusk in this aerial photograph taken on June 19, 2015.

Photographer: Craig Warga/Bloomberg via Getty Images

MSG opened in 1968 at an initial construction cost of $123 million; its first show featured Bob Hope and Bing Crosby in a United Service Organizations benefit concert. The arena’s tax exemption stems from a deal brokered by Mayor Ed Koch to staunch the tide of teams fleeing to New Jersey. The Giants had high-tailed it for greener pastures in the Meadowlands, and the city was concerned. New York has a desperate history with funding stadiums to retain sports teams, shelling out just shy of $1.5 billion in public funds for the new Yankee Stadium in 2009, and $614 million for the Mets’ Citi Field the same year.

With a $200 million renovation in 1991 and another $1 billion outlay in the early 2010s, MSG has been an expensive project to build and maintain. Its ownership, Madison Square Garden Entertainment Corp., is worth about $1.91 billion—so after paint and shingles, it seems the company has been able to scratch out a profit.

New York’s Independent Budget Office puts the total tax expenditure in the form of the property tax exemption at more than $875 million. The office calculates the ongoing annual cost to be $43 million.

To put that in perspective, taxing MSG in the same way neighboring businesses are taxed would fund all the city’s electric vehicle charging station initiatives in about four years. If EVs aren’t your thing, one year’s property tax revenue would fully fund the city’s program to improve discovery to ensure criminal cases are processed quickly and effectively.

Alternatively, the property tax would be enough to hire hundreds of additional prosecutors state-wide which would, in conjunction with other reforms, improve case backlogs and increase access to justice. Suffice it to say, the city and state could use the money.

And what about all the benefits that these projects supposedly provide to the public? Well, you may be not at all surprised to hear that the consensus is they don’t provide a return on economic investment—and indeed may actually be net fiscal negatives for the surrounding community.

For the most part, the residential areas around most major sports complexes aren’t the most economically advantaged portions of a city. So when these studies are trotted out, and hard numbers are cited, defenders of public funding for sports complexes will resort to what could be called the “Sim City Happiness” measure—that is, building a massive stadium contributes to civic pride and warm community feelings.

Maybe this is the case. But perhaps being able to brag about having the best public transit system in the world could similarly put some smiles on faces.

The future for ensuring venues pay their fair share lies in national initiatives such as the now-dead No Tax Subsidies for Stadiums Act of 2022, which intended to eliminate tax-exemption status for bonds used to finance sports stadiums. It died in committee.

Let’s revoke MSG’s property tax exemption. But at the same time, we should get Newark to promise they won’t offer MSG with a better deal in the Garden State. New York and New Jersey have a history of interstate compacts and can lead the way for the rest of the country.

Look for Leahey’s column on Bloomberg Tax, and follow him on Mastodon at @andrew@esq.social.