@johnlocke: That depends. It can be tax hikes, entirely privately funded, or a mix of the two. Each one is unique and really the only unifying factor is that the process is usually really contentious.
The saga of the MN United Stadium provides a good example. It was originally going to be build in Minneapolis, but the Mayor essentially killed it by refusing to budge on what the property taxes would be for the stadium. So in swoops St. Paul, who offers land that used to be a bus depot but is now abandoned.
The broad strokes of the plan that got worked out is that the team pays for the stadium itself but the city pays for the infrastructure upgrades to the surrounding land (i.e. sewers, parking areas, etc.). The stadium gets signed over to the city when its done, in exchange for the team being exempt from construction taxes and getting sales tax breaks and the city getting a property tax exemption from the state. Then there were issues of how high the stadium could be, with the end result that to address the height issue, the field will be sunk below the surrounding ground level, so most fans will actually enter and walk down to get to their seats.
But the stadium is going to have to demolish a mall to get built, and those leases are owned by private businesses who still haven't agreed to anything yet. They've actually had to start construction on the far end from the problem area. They're hoping that by the time the construction reaches the mall, they'll have worked something out.
Like I said, it gets complicated. And cities I think are gradually waking up to what a raw deal they usually get on stadiums. The San Deigo Chargers are probably going to move because they lost a public vote on funding a new stadium. Usually teams use the threat of a move to get fans to agree to higher taxes, but San Diego voter essentially said, "Nah. We're good."
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