An Agency Problem?
Kevin Drum wonders whether the proposed $700 million bid by Farmers Insurance for naming rights on a prospective LA NFL stadium makes any economic sense. It is an interesting question. I wrote:
This has always struck me as one of those agency problems, where the executive's incentives are different from the shareholders. Executives get a ton of benefits personally from this -- higher profile for the company which improves their profile and marketability, they get a prime box for the games, parties, etc.
Before the audience here slips into a round of corporate executive bashing, my sense is that the same perverse incentives are working for municipal leaders who have a mismatch with taxpayer interests when they shove huge amounts of taxpayer funds to owners in stadium deals (deals which economists speak with one voice on -- they never pay off for the community in full). One of the dirty secrets of these deals is that they generally include a sort of kickback in the form of boxes and club seats for the Mayor and city council's use (and sometimes multiple boxes for leaders of other government agencies in the town).
