Policy Debate: Does Public Investment in Municipal Sports Stadiums Pay Off?

Stadium subsidies do not increase economic activity in total and are not necessary to keep sports leagues in existence. Cities, though, face competition for sports teams; small market cities particularly might need to offer subsidies in response to remain competitive with larger markets. Riverfront Stadium in Cincinnati had not reached the end of its usefulness. But with other cities offering stadium deals, the Reds and Bengals secured new stadiums at a total cost over $500 million. If residents wish to support a team in this case, they should recognize that the subsidy reallocates resources, and investing resources means more sports but less of something else: police and fire protection, road repair, parks, or private consumption.
~Daniel Sutter, "Public Subsidies For Sports Stadiums Don’t Spur Economic Growth"

Some urban [stadium] facilities..., built in blighted areas, have had positive spin-off effects that no other type of development could have matched due to the regional support for professional sports. Not only did the facilities stimulate development in the immediate area, but it happened with help from entire metropolitan areas. It is unlikely that suburban counties would ever subsidize core-city development in any other circumstance.
~National Conference of State Legislatures, "Playing the Stadium Game: Financing Professional Sports Facilities in the '90s"

There has been an extensive amount of public investment in the construction of municipal sports stadiums in recent years. Cities wishing to either attract or keep a professional sports team are often forced to provide new stadiums as a result of competition with other cities. As noted by Baade, Nikolova, and Matheson (2006), 89 of the 120 sports teams in the four major professional U.S. sports leagues play in "facilities built or significantly refurbished since 1990."

Proponents of this public investment argue that investment in these stadiums provide multiplier effects in the local and regional economies. They also suggest that this investment may help to revitalize downtown areas that are experiencing economic difficulties. Baltimore's public investment in Camden Yards is often seen as an example of a successful public investment project that helped encourage growth in the Inner Harbor district. Advocates of public investment in stadiums often suggest that the increased tax revenue that accompanies economic expansion will outweigh the cost of the subsidies.

Many of the studies that suggest that municipal sports stadiums generate substantial economic returns for states and municipalities rely on the use of regional multipliers. These studies attempt to measure the direct and indirect impacts of spending by those who attend events at municipal stadiums. The direct impact includes spending on tickets and merchandise at the stadium as well as visitor spending on restaurant meals, hotel rooms, and similar tourist-related items. The increased spending and income in these tourist-related sectors generates a multiplier effect throughout the local and regional economy. Advocates of public investment in municipal sports stadiums generally cite studies that suggest that such investment results in large multiplier effects. Critics argue, however, that in the absence of a municipal sports stadium, much of the money that is spent by those attending sports events would have been spent on other entertainment events.

Critics of public investment in new stadiums also note that the multiplier effects of new stadiums is likely to be small since most new stadiums contain larger parking, restaurant, souvenir, and other concession facilities. This reduces the amount of spillover benefits in the neighboring community. Most economic studies have found that the local economy receives at best only limited economic benefits from the construction of such stadiums.

Opponents of public subsidies for municipal stadiums argue that the U.S. economy as a whole does not benefit from their construction. While a new stadium may provide economic benefits for the city in which it is located, money spent on this type of entertainment at this location would likely have been spent on some other form of entertainment if the stadium were not built. When a sports team relocates from one city to another in response to the construction of a new stadium, one city's economic gain is often equivalent to the loss received by the city that lost the franchise.

Since the nation as a whole does not benefit from the construction of municipal stadiums, there have been some attempts to eliminate the federal tax exemption for municipal bonds used to finance stadium construction projects. Those who oppose public subsidies note that the federal tax exemption helps subsidize these projects. It is argued that federal subsidies should not be provided for projects that do not benefit society as a whole.

Opponents of public investment in municipal stadiums argue that political decisions involving such issues are likely to reflect the interests of special-interest groups rather than the interests of the entire community. Firms in the hotel, restaurant, and other tourist-related industries have a large financial stake in the outcome while a typical taxpayer receives only a small impact in the form of higher taxes. Those with a large financial gain have a strong incentive to lobby for public investment in municipal stadiums while each individual taxpayer has much less incentive to become involved in this political process. The problem is that the costs are spread among so many taxpayers that no individual taxpayer has an incentive to argue against such projects even if the total costs to taxpayers outweighs the benefits received by the community.

Those who are opposed to public investment in municipal sports stadiums often argue that the antitrust exemption for baseball provides teams with more leverage in extracting commitments for public financing. This exemption, it is argued, provides major league baseball with a more credible threat of leaving a city that does not provide new facilities. "The Fairness in Antitrust in National Sports (FANS) Act" was proposed in late 2001 in response to this issue. This Act would eliminate the antitrust exemption in cases dealing with team relocation or elimination. (A more complete discussion of these issues may be found on the debate page on the antitrust exemption for baseball.)

Supporters of public investment in municipal sports stadiums, however, often argue that the benefits from the existence of a major-league sports team include some benefits that cannot be easily measured. These benefits include a sense of civic pride and the feeling that only "major-league" cities have major-league sports teams.

Advocates of public funding of stadium construction also note that many people watch sporting events on television listen to them on the radio, or read about them in the newspapers. These consumers receive benefits from the team's existence even though they do not physically attend the games. Since these viewers are effectively "free-riders" who benefit from the team's existence, supporters of public investment in sports stadiums argue that professional sports activities would be underproduced in the absence of a public subsidy.

• State of Wisconsin Legislative Reference Bureau, "Stadium Finance: Government's Role in the 1990s"
  http://www.legis.state.wi.us/lrb/pubs/ib/96ib1.pdf
  This document, provided by the State of Wisconsin Legislative Reference Bureau, contains an overview of the economic issues associated with public finance of sports stadium construction. It contains several case studies of the effects of earlier stadium construction projects. (To view this document, the Adobe Acrobat viewer plugin is required. You may download this viewer by clicking here.)

• Angelo Bruscas, "My Stadium's Better than Your Stadium"
  http://seattlep-i.nwsource.com/safeco/stadium/env14.shtml
  In this July 14, 1999 article in the Seattle Post-Intelligencer, Angelo Bruscas discusses some of the controversy surrounding the construction of Safeco Field in Seattle. The end of this article, contains a useful summary description of recent and proposed stadium construction projects. The opening date (or projected opening date) for each project is provided along with a listing of the construction cost, method of financing, number of seats (including club and luxury seats), and the architect for each project.

• HOK Sport
  http://www.hoksve.com/sport/index.htm
  HOK Sport is the architect for a very large share of recent and proposed stadium projects. Their web site lists their projects and provides pictures of and some information about each of the stadiums that they have designed.

• San Diego Padres, "A Ballpark for San Diego"
  http://padres.mlb.com/NASApp/mlb/sd/ballpark/sd_ballpark_project.jsp
  This webpage provides links to information on the status of the construction of a new ballpark for the Padres.

• Washington State Public Stadium Authority
  http://www.stadium.org
  This web site contains information on the public-private project that was responsible for building a new stadium to replace the Kingdome. Additional information on the new stadium is available at: http://www.ballpark.org.

• David Fettig, "A Report from the Battlefield"
  http://minneapolisfed.org/pubs/region/96-06/reg966c.cfm
  David Fettig discusses many of the issues associated with competition among states in this June 1996 article appearing in The Region. The focus of the article is on discussions that occurred at "The Economic War Among the States" conference held in Washington, D.C., in May 1996. Many of the issues discussed in this article apply to competition for professional sports franchises.

• Minnesota Senate Counsel and Research, "Stadium Discussion Points"
  http://www.senate.leg.state.mn.us/departments/scr/report/STADIUM.HTM
  This document contains a discussion of the major arguments for and against public subsidies for the construction of a new stadium to replace the Metrodome. This article provides a nice introduction to the issues that are facing state and local governments in making decisions on these issues.

• Minnesota Legislative Reference Library: "Resources on Minnesota Legislative Issues: Financing Professional Sports Facilities"
  http://www.leg.state.mn.us/lrl/issues/sports.htm
  This webpage, provided by the Minnesota Legislative Reference Library, contains a summary of the major arguments for and against public investment in stadiums. It also contains a reasonably extensive list of both print and online resources related to this topic.

• Joanna Cagan and Neil Demause, "Field of Schemes"
  http://www.fieldofschemes.com
  This web site contains information on the current status of sports stadiums that are being built or rebuilt using public subsidies. As the title of this website suggests, the authors are opposed to the use of public subsidies for these projects. Of particular interest is their page entitled: "The Field of Schemes News."

• Daniel Sutter, "Public Subsidies for Sports Stadiums Don't Spur Economic Growth"
  http://www.ocpathink.org/ViewPerspectiveEdition.asp?ID=70
  In this Oklahoma Council of Public Affairs article, Daniel Sutter provides a critical examination of the use of subsidies for the construction of new stadiums. He argues that the construction of new stadiums diverts consumer spending from other forms of entertainment without increasing the total level of consumer spending. This results in a diversion of entertainment spending from one geographical area to another. Sutter argues that many of the economic impact studies generated by supporters of stadium projects overestimate the benefits resulting from these projects by not taking into account the effects of this diversion of consumer spending. When these effects are taken into account, the economic impact of the stadium projects are much smaller. Sutter argues that: "Arizona's Bank One Ballpark created 340 jobs at a cost of $240 million in subsidies." He notes that since modern ballparks include their own parking, souvenir shops, and restaurant facilities there are few spillover effects into the neighboring business community.

• Howard Hobbs, "Fresno's New Baseball Stadium Better Not Be Paid For With Municipal Bonds"
  http://www.dailyrepublican.com/subsidiesdry.html
  Howard Hobbs discusses some of the legal and economic arguments against public subsidies for sports stadiums in this September 19, 1996 article. He notes that most states prohibit the use of state funds to aid a private enterprise, yet municipal financing of sports stadiums has been expanding rapidly.

• Howard Hobbs, "Public Funded Fresno Stadium: Gross Overestimate of Economic Benefits, Underestimated Economic Costs"
  http://www.dailyrepublican.com/stadium-understated-cost.html
  In this November 29, 1997 Daily Republican article (updated on December 3, 1999), Howard Hobbs provides a nice summary of the arguments for and against public subsidies for professional sports stadiums. He argues, though, that the evidence suggests that the proponents tend to exaggerate the benefits from such projects. Hobbs argues that while spending on such sports stadiums provides jobs for construction workers, it withdraws resources from other alternative investment projects that would also have provided construction jobs. Since the rate of return to investment in sports stadiums appears to be lower than in other industries, he suggests that society would be better off if fewer new stadiums were built. Hobbs suggests that antitrust actions should be used to break up sports leagues into smaller competing business entities. He argues that this would reduce the monopoly power that allows existing sports leagues and teams to pressure cities to provide heavily subsidized new stadiums.

• Ronald D. Utt, "Cities in Denial: The False Promise of Subsidized Tourist and Entertainment Complexes"
  http://www.heritage.org/Research/UrbanIssues/BG1223es.cfm
  In this October 2, 1998 Heritage Foundation Backgrounder, Ronald Utt argues that subsidized public investment in stadiums and similar tourist and entertainment facilities has not been a profitable strategy. He argues that even the allegedly successful Baltimore Inner Harbor development projects "have contributed very little to the economic well-being of Baltimore or the shrinking number of residents."

• Ronald D. Utt, "Taxpayers Prop Up Sports Profits"
  http://www.heritage.org/Press/Commentary/ed073002.cfm
  Ronald D. Utt argues that public subsidies of the construction of sports stadiums represents a transfer of income from taxpayers to relatively high-income team owners. He suggests that public investments in constructing sports facilities represent a problem of misplaced priorities.

• Raymond Keating, "Squeeze Play: Do Baseball Stadiums Need Our Bucks to Get Built?"
  http://www.cato.org/dailys/04-06-99.html
  Raymond J. Keating argues that there is no need for public subsidies for sports stadiums in this April 6, 1999 Cato Institute Commentary. He notes that private investment was sufficient to construct very profitable stadiums throughout the early part of the 20th century. Keating notes that most economic studies have found little or no economic benefit to cities from public investment in sports stadiums.

• Raymond J. Keating, "Sports Pork: The Costly Relationship between Major League Sports and Government"
  http://www.cato.org/pubs/pas/pa-339es.html
  In this April 15, 1999 Cato Policy Analysis, Raymond J. Keating provides a more elaborate discussion of his arguments against public funding of sports stadiums. He notes that there has been over $14.7 billion in government subsidies for major league athletic facilities during the 20th century. He argues that the primary beneficiaries of this spending are the team owners and players. Keating summarizes several studies that suggest that cities do not gain from such public investments. He suggests that voter approval should be required for any subsidies to professional sports teams. (To view this document, the Adobe Acrobat viewer plugin is required. You may download this viewer by clicking here.)

• Dennis Coates and Brad R. Humphreys, "The Growth Effects of Sport Franchises, Stadia, and Arenas"
  http://research.umbc.edu/~coates/work/v698.pdf
  In this December 1, 1997 working paper, Dennis Coates and Brad R. Humphreys examine the effect of sports stadiums on economic growth. They find that some professional sports franchises reduce the level of per capita income in cities and have no effect on the growth rate in per capita income. (To view this document, the Adobe Acrobat viewer plugin is required. You may download this viewer by clicking here.)

• Dennis Coates and Brad R. Humphreys, "The Stadium Gambit and Local Economic Development"
  http://www.cato.org/pubs/regulation/regv23n2/coates.pdf
  Dennis Coates and Brad R. Humphreys examine the effect of sports stadiums on local economic development in this Summer 2000 issue of Regulation. This paper provides a somewhat less technical summary of the analysis presented in the paper listed above. They find that the introduction of a new sports stadium reduces the level of per capital income, but has no effect on the growth rate of per capita income. (To view this document, the Adobe Acrobat viewer plugin is required. You may download this viewer by clicking here.)

• Joseph L. Bast, "Sports Stadium Madness: Why it Started - How to Stop It"
  http://www.heartland.org/Article.cfm?artId=9474
  This online document provides a discussion of the reasons for the growth of public spending for sports stadia. Joseph L. Bast argues that a solution is to press for non-profit ownership of professional sports teams.

• City of San Diego, "Conclusions of Mayor's Task Force on Padres Planning"
  http://www.ci.san-diego.ca.us/ballpark/report.shtml
  This page contains a list of reasons for supporting a subsidized new stadium for the Padres. The projected benefits that they foresee include:
  • the preservation of a community partnership with the Padres,
  • the need to have a separate baseball-oriented stadium that generates revenue streams "dedicated to the primary sports tenant,"
  • a need to enhance the revenue stream received by the Padres to ensure their long-term survival in San Diego,
  • a desire to revitalize the area of the city in which the stadium is located, and
  • it will provide an "internationally recognized symbol of the city" that "brings pride and unity to residents of the region and enhances San Diego as a visitor and business destination."

• Roger G. Noll and Andrew Zimbalist, "Sports, Jobs, and Taxes: Are New Stadiums Worth the Cost?"
  http://www.brookings.edu/press/review/summer97/noll.htm
  Roger G. Noll and Andrew Zimbalist examine the economic impact of public subsidies for professional sports stadiums in this Summer 1997 Brookings Review article. They argue that proponents of public subsidies overestimate the benefit from these stadiums. Noll and Zimbalist note that economic growth occurs when resources become more productive or are transferred from low-valued uses to more highly valued uses. Investment in public stadiums does not increase the productivity of any factor of production, nor does it transfer resources to a more highly valued use. Noll and Zimbalist also note that such subsidies result in a more unequal distribution of income since it transfers income to team owners who already receive incomes that are substantially above the national average.

• S. 952 - Stadium Financing and Franchise Relocation Act of 1999
  http://thomas.loc.gov/cgi-bin/query/z?c106:S.+952:
  The Stadium Financing and Franchise Relocation Act of 1999, proposed by Arlen Spector would have required professional sports leagues to bear 50% of the costs of stadium construction in return for an expansion of the antitrust exemption for professional sports leagues.

• Mike Narcowich, "Sports and Economic Development: A Literature Review"
  http://www.unc.edu/depts/dcrpweb/courses/261/gessner/mnreview.htm
  In this online document, Mike Narcowich provides a useful summary of the issues and empirical results concerning the effect of investment in professional sports stadiums and economic growth. This literature review provides a very nice summary of most of the economic issues involved in this controversy.

• Robert A. Baade, "Some Observations on a New Fenway Park: Is It Necessary? Is It Financially Prudent?"
  http://www.savefenwaypark.org/baade/BaadeReport.htm
  In this June 13, 2001 online article, Robert A. Baade argues that a replacement for Fenway Park is not needed. He notes that the team owners are already receiving relatively high levels of revenue and attendance in their existing park. Baade argues that the costs of the new stadium and the small expected marginal gain makes a new stadium project undesirable.

• Robert A. Baade, Mimi Nikolova, and Victor Matheson, "A Tale of Two Stadiums: Comparing the Economic Impact of Chicago’s Wrigley Field and U.S. Cellular Field"
  http://www.holycross.edu/departments/economics/RePEc/Matheson_TwoStadiums.pdf
  Robert A. Baade, Mimi Nikolova, and Victor Matheson, in this August 2006 working paper, compare the economic benefits from the new U.S. Cellular Stadium in Chicago with those associated with Wrigley Field. They note that older stadiums were traditionally built so that they were integrated into their neighborhoods. Newer stadiums, such as the U.S. Cellular Stadium, are built as a "'walled fortress' that internalizes all economic activity n order to maximize revenues for the franchise at the expense of local economic development." They note that Wrigley Field has no nearby parking, so those attending must walk through the surrounding neighborhood. U.S. Cellular Stadium, on the other hand, has large parking facilities so that those attending the game can leave the complex without walking by neighboring stores. There is much space for vendors within the U.S. Cellular Stadium, but only limited vendor space in Wrigley Field. This increases the market for food and souvenir merchandise in the neighborhood around Wrigley Field. A similar situation holds for many other new stadiums. In the words or Baade, Nikolova, and Matheson: "New stadiums, either through accident or design, have appropriated revenues that in older stadiums were claimed by the neighborhood." (To view this document, the Adobe Acrobat viewer plugin is required. You may download this viewer by clicking here.)

• John Conyers, Jr., Paul Wellstone, Tom Harkin, Mark Dayton, Betty McCollum, Martin Olav Sabo, James P. Moran, and Earl Pomeroy, "Make Baseball Play by the Same Rules as Other Professional Sports and Businesses Before Baseball Eliminates 2 Teams"
  http://www.house.gov/judiciary_democrats/fansdc11301.pdf
  This letter asks for additional cosponsors for the "Fairness in Antitrust in National Sports (FANS) Act of 2001." Under this Act baseball's antitrust exemption would be limited for decisions on team elimination or relocations. It is argued that baseball's antitrust exemption has resulted in "the perpetuation of a closed, cartelized industry...." (The Adobe Acrobat viewer plugin is required to view this document. You may download this viewer by clicking here.)

• Drake Bennett, "Ballpark Figures"
  http://www.boston.com/news/globe/ideas/articles/2006/03/19/ballpark_figures/
  Drake Bennett examines the arguments for and against public subsidies for sports stadium construction in this March 19, 2006 Boston Globe article. He notes that the consensus of economic studies is that there is no positive financial impact to communities who subsidize stadium construction or renovation. Bennett notes that proposals for the construction of a new sports stadium is accompanied by an economic impact study that suggests that there will be large multiplier effects on the local community. Economists, though, have generally found that additional spending on sporting events is likely to be accompanied by a reduction in spending on some other form of entertainment. Thus, there is no net increase in spending in local communities. Most of the jobs created at a sports stadium are part-time jobs that are seasonal in nature.

• Ralph Nader, "Stadium Subsidies Scalp The Public"
  http://www.commondreams.org/views/032700-101.htm
  In this March 27, 2000 Boston Globe op-ed, Ralph Nader argues that public subsidies for the construction of sports stadiums represents a transfer of income from low-income taxpayers to wealthy team owners. He summarizes the results of economic studies that indicate that local communities do not receive financial benefits from the construction of new stadiums.

• The Sports Economist
  http://www.thesportseconomist.com/
  The Sports Economist is a multi-author blog that discusses a variety of issues associated with the economics of sports. Stadium finance is a frequent source of blog discussion.