Policy Position

Publicly Funded Stadiums

in Government Regulation

Introduction

It is not unusual for cities, counties, and even states to spend taxpayer money to build stadiums for major- and minor-league sports teams. Officials claim that stadiums are good for the economy, despite the likely increase in property, sales, or other taxes, because spectators will spend money in restaurants and hotels, grow businesses, and boost employment.

The evidence suggests otherwise.

In 2015, Dennis Coates, professor of economics at the University of Maryland, published a study examining every city with a major-league franchise in any of the major pro sports between 1969 and 2011. His findings are not unique, but they are striking. The presence of a professional sports team usually had a negative economic impact. Cities with professional teams saw per-capita gross domestic product drop. People became poorer. He writes,

…the entire sports environment matters for the level of real personal income per capita, in the sense that the array of sports variables are jointly statistically significant. But contrary to the promised increase, the presence of a major sports franchise lowers the income.

Studies that reach these conclusions aren’t new. In 1999, economist Raymond Keating published “Sports Pork: The Costly Relationship between Major League Sports and Government” for the Cato Institute. Looking back over the history of stadium projects during the 20th century, he calculated that nearly $15 billion in government subsidies had been spent on arenas for the MLB, NFL, NBA, and NHL. He also concluded that there was a negative economic impact overall.

Negative economic consequences are due, in part, to the “substitution effect,” a well-known concept in economics. People have a limited number of hours and dollars, and a percentage of those are spent on leisure activities. Fans visiting a new stadium will not spend new money. Instead, they will spend money at the new stadium, rather than use it to participate in a different activity or attend a different event. In other words, the total money spent in the economy isn’t different; it’s just redistributed. This can even take business away from small, local competitors, which is usually the last thing any politician or resident wants for the local economy.

Additionally, under publicly funded stadium plans, the city or county usually retains ownership of the stadium, while the team and its owners control revenue. This places the burden of maintenance for an expensive stadium on taxpayers for decades – regardless of whether a team stays in town.

Sports is big business – both major-league sports and smaller minor-league operations. The effects are the same with smaller stadiums, just on a slightly different scale. It is therefore right that owners should build the facilities necessary for their businesses to thrive, in the same way that we expect other private businesses to build or rent office and retail spaces. Local governments and their taxpayers are better served by leaving the building of stadiums to the private businesses that will benefit most from them.

Key Facts

  • According to the research, sports teams usually have a negative economic impact, with per-capita income actually dropping after teams arrive.
  • Spectators don’t spend new leisure dollars on a new sports team, but rather divert money they were already spending in local businesses.
  • Publicly owned stadiums reduce the cost to team owners of moving a franchise and leave local governments with an expensive facility to maintain, burdening taxpayers for decades regardless of whether a team sticks around. For example, in 2014, Charlotte found itself on the hook for nearly $34 million for renovations to the Charlotte Hornets’ Spectrum Center, while the team contributed only around $6 million.

Recommendations

  1. Resist calls to spend taxpayer money to support private enterprises, including sports teams. If a sports team has the potential to be financially profitable, then it will attract sufficient private investment.
  2. Consider lowering tax rates and easing the regulatory burden for all businesses, including sports teams. To attract private investment, local governments should maintain a business-friendly tax and regulatory environment.
  3. Ease planning restrictions to allow private developers to build stadiums and ballparks where there is real demand. There is no need to complicate the planning process for those willing to invest millions of dollars in a sports facility.

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