Why do cities pay for stadiums?

John O. Sullivan

“Look, we play the Star Spangled Banner before every game. You want us to pay income taxes, too?”
-Bill Veeck, MLB Franchise Owner

It seems every fall and spring is punctuated with the same cycle for sports fans. The season ends, and the least successful teams and the teams in the oldest stadium start talking relocation. The bad teams are hoping a change of scenery and fan base will incite success and profit. The teams in the oldest stadiums are hoping to leverage public opinion for new or renovated facilities, in their current location or elsewhere if necessary. And time and time again, we see municipalities shell out millions for professional sports complexes. Until recently, the NFL and MLB were considered tax-exempt organizations. At least 124 professional athletes have signed $100 million+ contracts in the last two decades. So, why would any city shell out millions in public, taxpayer dollars to build stadiums for professional sports teams that are so good at making money for themselves?

A common argument on behalf of the team owners is that the stadium activity itself will generate significant economic benefits that outweigh the upfront public cost. They argue that stadium events/visitors will drive up economic activity around the stadium on everything from parking to nearby restaurants and bars to the stadium employees themselves, creating economic multipliers that will drive revitalization and growth.

However, many in the economics field  do not believe this to be true. Roger Noll, Stanford Economics professor and former member of the President’s Council of Economic Advisors, cites that the investment by local governments are not paid back in measurable economic factors, and that comparably priced facilities, like a major retail center or industrial facility, will produce more jobs and income than a stadium can for the same price. The Brookings Institute similarly pointed out that a stadium only adds value to the local economy when there were no potential ways to use that labor force more effectively, which is rare, as most stadium-generate jobs are low wage. According to Michael Leeds, sports economist at Temple University, if every sports team in Chicago (Yes, all 5; 2 MLB teams, a NFL team, a NHL team, and a NBA team), were to leave town, “the impact on the Chicago economy would be a fraction of one percent. A baseball team has about the same impact on a community as a midsized department store.” And yet, it is hard to imagine the city of Chicago spending $430 million over 25 years to keep a K-Mart in town.

So if they aren’t even paying back the cost of investment, why would cities keep putting out millions of dollars in tax incentives and construction costs to put professional sports stadiums in their cities?

In part, its because Americans love sports. One of the principle lessons of electoral politics is that politicians are rational actors, they do the things they think will get them re-elected. 60% of Americans consider themselves sports fans, a clear majority. No local sports fan wants to see their team leave town, and politicians know this. While hard data on this specific issue is sparse, I don’t think it’s a very far stretch to think that most local city council members don’t want to be on the receiving end of the rage of passionate American sports fans.

However, I take objection to this. As an American and as a student of Public Policy, I find this line of reasoning objectionable. Usage of public funds for sports stadiums is the lowest, most base, and one of the most common forms of pandering. It is the subversion of smart policy by electoral politics. Multi-million dollar organizations should not get tax breaks just because they’re popular. Millions should not be emptied from public coffers for facilities which will be used a dozen times a year and barely contribute to the local economy.
The state has an obligation to provide sufficient infrastructure for these stadiums. The roads and highway access and power grids and pipes and sewage that will allow the stadium to operate cleanly and safely are without a doubt under the purview of the state. But to allow a mutli-billion dollar industry millions in tax breaks while also paying out millions towards constructions costs. The math doesn’t add up. Professional sports franchises are sticking up municipalities, and local officials are handing over the taxpayers money, happily. It’s bad economics, it’s weak policy, and it’s only mediocre politics. It’s time for the multi-billion dollar sports industry to put out on its own capital investments, and stop trying to turf the expense out onto the taxpayer.

 

Feature Image: Ribbon cutting at Eastern New Mexico University. Courtesy of www.enmu.edu

2 thoughts on “Why do cities pay for stadiums?

  1. While the facts stated here regarding the economics of stadiums and the like are irrefutable, I disagree at premise with the notion that economic value is the only value these teams provide a city. Boston without the Redsox, Detroit without the Redwings, Chicago without the Cubs or Da Bears just wouldn’t be the same. Sports are more than just something Americans enjoy. Globally, sports teams are integral to the identities of municipalities. They’re how we identify with one another in proximity.
    Further, by sheer economics alone, should the great cities of America not invest in other cultural enterprises? Museums? Operas? Zoos or aquariums? They’re all part of what makes a city the vibrant centers of our society. Otherwise, all cities should do is clean the streets and collect the trash — to Hell with the rest of it.

    Like

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