Sincethe late 1950s, the sports industry has experienced a prolonged economic boom.Revenues from attendance, broadcasting, and concessions have shown rapid,steady growth. Meanwhile, the proportion of team revenues needed to coverstadium costs has declined because of the increasing eagerness of state andlocal governments to compete for teams by subsidizing them. In response to theseattractive financial prospects, the industry has burgeoned.
Established leagueshave created new teams, and new leagues have emerged in all the majorprofessional sports, with several surviving long enough to see many of theirteams incorporated into existing leagues. This trend in the number and expenseof tax-payer stadiums raises several related questions. First, who actuallypays for stadiums, and who benefits from them? Second, what are the effects ofteams and stadiums on a metropolitan area, a city, and its local neighborhood? Third,why do cities subsidize sports facilities, and what determines the amount ofsubsidy a team receives? And most importantly, are these facilities worth it:to the teams, the leagues, and the cities that foot part of the bill? Thispaper will answer these questions, as well as provide a conclusive answer as towhether the economic benefits outweigh the costs.TheUnited States is clearly experiencing a sports construction boom. Industry experts estimate that more than $20 billion will be spent on newsports facilities before 2020 (Florida).
pa1 Legerdemainnotwithstanding, much of this money will come from public sources; the averagesubsidy from a host city to its sports team most likely will exceed $10 milliona year (Heller).pa2 Although some of this support might rationally flow in recognition of thepositive externalities engendered by sports teams, for the most part it is madenecessary by the noncompetitive structure of the U.S. team sports industry.Major sports leagues are monopolies. They maximize the profitsof their members by keeping the number of franchises below the number of citiesthat are economically viable locations for a team (Fort). pa3 Asa result, cities are thrust into competition with one another to procure or toretain teams. The form this competition takes is a bidding war, whereby citiesbid their willingness to pay to have a team, not the minimum amount that wouldbe necessary to keep a team viable.
The tendency of sports teams to seek morehospitable venues has been exacerbated in recent years by new stadiumtechnology as well. Replacing the rather ordinary cookie-cutter, concrete slab,multipurpose facility of the 1960s and 70s is the single-sport, moreaesthetically pleasing facility that features numerous new revenueopportunities: luxury suites, club boxes, elaborate concessions, catering,signage, parking, advertising, theme activities, and even bars, restaurants,and apartments with a view of the field. Depending on the sport andthe circumstance, a new stadium or arena can add anywhere from $10 to $30million a year to a team’s revenues for the first few years after the stadiumis constructed (Zimbalist and Noll).pa4 Consequently, new stadiums can be so alluring to a team that demographicallylesser cities with new stadiums (such as Charlotte, Jacksonville, andNashville) can compete effectively for teams against larger cities with olderstadiums.
The new stadium technology, by enhancing revenue opportunities, canincrease the number of cities that are economically viable franchise sites,thereby exacerbating the imbalance between the supply and demand for sportsfranchises. This imbalance, in turn, leads cities imprudently to offer thekitchen sink in their effort to retain existing teams or to attract new ones. Including site acquisition and supporting infrastructure, a new stadiumcosts at least $200 million, and in most cases much morepa5 (“Stadium of the Year…”). To date, the most expensive stadiums havebeen in the range of $600 million to $800 million, although Los Angeles iscontemplating a home for the Rams that will cost about $2.6 billion. pa6 Furthermore,when a state government becomes involved in financially supporting the effort,it generally requires the approval of parallel pork projects elsewhere in thestate to secure the necessary votes in the legislature. Teams do not havesufficient revenues from their own sources to pay for investments in stadiumsof this magnitude.
A sports franchise is simply too small and earns too littleprofit to pay the full cost of even a $200 million facility. But, of course, inrecent years almost no team has had to pay the full cost of its playing facility.Local and state governments bear part—and sometimes virtually all—of thestadium costs. Usually the stadium lease is so favorable to the team that thecity cannot cover its incremental debt service with rent and other stadiumrevenues. Indeed, the city must not receive enough direct revenuesfrom the stadium to recover its debt cost or the debt that finances thefacility will not qualify for the federal tax exemption on municipal bonds(“About Municipal Bonds”). pa7 Whilethe public ends up paying for a substantial part of most stadiums, highly paidplayers and wealthy owners divide nearly all the millions in extra revenue.Since public financing often comes in the form of regressive sales taxes orlottery revenues, the distributional consequences of stadium projects are notsalutary for those concerned with inequality.
Threequestions might be asked about the economic impact of a professional sportsteam or facility: Does it promote the general economic development of ametropolitan area? Can it significantly assist in maintaining the vitality ofthe central city? Can it stimulate micro development in a small, defineddistrict within a city? The studies in this field uniformly conclude thatmetropolitan and central city economic development is not likely to be affectedby a sports team or facility. Whether core centrality or micro development canbe supported by a team or facility will depend on a number of factors: thedevelopment plan; the areas physical, economic, and demographic characteristics,and the facility’s financing and lease arrangements. But even under the best ofcircumstances, any such effect is modest at best. These results are in sharpcontrast to the claims of the dozens of promotional studies that have beenperformed by consulting firms under contract with the affected city or team.Predictably, their reports conclude that a sports team produces a substantial,positive impact. Yet their analyses are fraught with methodologicaldifficulties. First, they often confuse new spending with spending that isdiverted from other local activities.
Second, they attribute all spending byout-of-town visitors to the sports team regardless of the motive for the visit.Third, they overstate the multiplier by ignoring crucial characteristics ofsports spending. Fourth, they apply this inflated multiplier to gross spending,rather than local value added.
Fifth, they omit the negative effects from thetaxation that is used to finance construction and operating deficits of thefacility. When these erroneous factors are removed, the net economic gain isshown to be minimal if not negative; two of the most widely acceptedpeer-reviewed studies on the economic impacts of tax-payer subsidized stadiumswere conducted prior to, during and after the construction of Oriole Field inBaltimore, Maryland. One estimated that the new stadium would generate 1,394 full-time equivalent jobs, for a cost per job of $127,000; the otherestimated 534 jobs, for a cost per job of $331,000 (Davidson).pa8 Incontrast, the cost per job generated by the incentive program of the Maryland StateEconomic Development Agency is only $6,250 (“Stadiums.
“). To the extent that anew stadium is a central element of an urban redevelopment plan and itslocation and attributes are carefully set out to maximize synergies with localbusiness, and to the extent that the terms of its lease are not negotiatedunder duress and are relatively fair to the city, the local community mayderive some modest economic benefit from a sports team. The problem is thatthese two conditions rarely apply to monopoly sports leagues. Cities are forcedto act hastily under pressure and to bargain without any leverage.
Properlyreckoned, the value of a sports team to a city should not be measured indollars of new income but should be appreciated as a potential source ofentertainment and civic pride that comes with a substantial net cost.Itis difficult to see an end to the growing public subsidization of sportsfacilities despite the inherent flaws. Whereas the superficial explanations forthis phenomenon lie in the details of federal, state, and local politics, theultimate reason can be found by looking in the mirror. Professional sports inthe United States are subsidized because they are very popular monopolies.While grass roots movements in local areas may achieve modest successes inslightly altering the terms of stadium subsidies, until the structural monopolyand cultural centrality are modified, large-scale public subsidies to wealthyteam owners and athletes will be a feature of the professional sports
