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When owners and operators of a professional franchise lobby a community for a new or updated stadium or arena, they frequently argue that construction and operation of the facility will boost the local economy. On the surface, that makes sense. Arenas and stadiums are expensive to construct and they have a propensity to attract large numbers of visitors with disposable income, including from other communities. That fuels spending, hotel stays, job creation and tax revenues.

But for the most part, economists do not buy into such arguments. As an example, Roger Nolls, professor emeritus at Stanford and an expert on the economics of sports, is quoted as saying that “NFL stadiums do not generate significant local economic growth, and the incremental tax revenue is not sufficient to cover any significant financial contribution by the city.” He goes on to suggest that basketball and hockey arenas are better for cities because they are used more often. 

Along with others, many skeptical economists wonder why public financing is needed at all if arena and stadium deals are so economically beneficial. After all, an economically viable business model should work without hundreds of millions of dollars in public assistance. Others point out that it makes little sense to subsidize the large-scale operations of the already very rich.

Valued at $3.4 billion, the New York Yankees is the second most valuable sports team in the United States. Yet, according to a report released by the Brookings Institution, when the new Yankee Stadium was completed in 2009, $1.7 billion of the $2.5 billion cost was financed with tax-exempt municipal bonds issued by the city. According to Brookings, those bonds amounted to a $471 million subsidy for the team. 

Nonetheless, public policymakers have seen fit to enter into large-scale public-private partnerships for decades. A working paper authored by two UMBC economists roughly 15 years ago indicated that for new sports facility construction projects taking place during the period stretching from 1998 through 2003, public financing accounted for 65 percent of the cost of development. In a number of instances, including for baseball and football stadiums in Baltimore and Cincinnati, the public subsidy represented 100 percent of the total project cost.

The implication is that many policymakers view these deals far differently from their would-be economic advisors. Part of the reason is that spectator sports are much beloved by a significant fraction of the population. Because these benefits do not show up neatly in transactions, they are often not measured at all. Correspondingly, the impacts that are measured by economists often prove insufficient to justify large public subsidies, but policymakers are more likely to account for the sentiments of those who may not have the time or the financial resources to attend games routinely. 

Without question, cities and states can make deals that end up working out poorly. For instance, the cities of Oakland, Calif., and St. Louis, Mo., continue to contribute substantially to remaining debt service on now obsolete stadiums that were constructed to attract the Oakland Raiders and the St. Louis Rams away from Los Angeles during the 1990s. In recent years, there has been a race to Los Angeles, with both the San Diego Chargers and St. Louis Rams taking their talents to Hollywood. Earlier this year, the NFL’s owners voted 31-1 to allow the Oakland Raiders to abandon their rabid fan base and move to Las Vegas.

There are certainly cities that decide an arena or stadium deal is simply not worth the bother. Late last year, voters in San Diego County soundly rejected a referendum that would have directed hundreds of millions of dollars toward building a replacement for Qualcomm Stadium, which opened in 1967 and is one of the oldest structures in the league. The Chargers had put forth a proposal to build a downtown stadium near the city’s convention center and asked voters to raise the county’s hotel tax. Predictably, many hoteliers opposed the proposed tax increase, arguing in part that it would render San Diego a less affordable city to visit. Around that time, policymakers in Clark County, Nev., agreed to increase the local hotel tax to raise $750 million for a new stadium. Voters in Arlington, Texas, voted 60-40 in favor of a proposal to supply as much as $500 million in public financing for a new stadium with a retractable roof.

Despite the growing volume of economic literature concluding that public funding for professional sports facilities is generally unwarranted and typically fails to generate growth in local per capita income, many policymakers will continue to enter into such deals. Many rapidly emerging cities have aggressively gravitated to professional sports in recent decades, including Nashville, Tenn., Charlotte, N.C., Oklahoma City and Las Vegas. The United States is a representative democracy, which means that if enough people want something even if economists believe that they shouldn’t, their elected representatives are apt to act to satisfy those desires.

The other major consideration is that sports facilities are often used to trigger a broader array of mixed-use development. These sports-anchored districts are often connected to existing public transit systems and enjoy downtown locations. For example, a rundown area along the Anacostia River in Washington, D.C., has become one of the region’s most desirable areas to live and work following the opening of Nationals Stadium in 2008. Sports facilities also have helped trigger large-scale mixed-use development in a bevy of other communities, including Baltimore, Toronto, Edmonton and Los Angeles.

All of this is good news for construction firms. A number of significant U.S. cities presently lack a professional franchise, and it’s just a matter of time before the people of somewhere like Raleigh, N.C., or Austin, Texas, conclude that their time has come. 

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