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Should cities pay for sports facilities?
Federal Reserve Bank of St. Louis - Regional Economist, Apr 2001 by Zaretsky, Adam M
Bug Me Skyboxes and Cracker Jack(R). I Don't Care It You Don't Earn It Back Americans love sports. Watching the home team in any of the four major sports--baseball, football,basketball and hockey-march to victory in the World Seris, Super Bowl, NBA Finals or Stanley Cup Finals arguably generates more excitement and local pride in a town than any other event. Fans love when the hometown boys win. But even when they don't, fans stick by their teams. By and large, so do the cities these teams play in. In fact, cities with home teams are often willing to go to great lengths to ensure they stay home. And cities without home teams are often willing to dangle many carrots to entice teams to move. In either case, the most visible way cities do this is by building new stadiums and arenas.
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Between 1987 and 1999, 55 stadiums and arenas were refurbished or built in the United States at a cost of more than $8.7 billion.1 This figure, however, includes only the direct costs involved in the construction or refurbishment of the facilities, not the indirect costs-such as money cities might spend on improving or adding to the infrastructure needed to support the facilities. Of the $8.7 billion in direct costs, about 57 percent-around $5 billion-was financed with taxpayer money. Since 1999, other stadiums have been constructed or are in the pipeline (see table on page 8), much of the cost of which will also be supported with tax dollars. Between $14 billion and $16 billion is expected to be spent on these post-'99 stadiums and arenas, with somewhere between $9 billion and $11 billion of this amount coming from public coffers. The use of public funds to lure or keep teams begs several questions, the foremost of which is, "Are these good investments for cities?"
The short answer to this question is "No." When studying this issue, almost all economists and development specialists (at least those who work independently and not for a chamber of commerce or similar organization) conclude that the rate of return a city or metropolitan area receives for its investment is generally below that of alternative projects. In addition, evidence suggests that cities and metro areas that have invested heavily in sports stadiums and arenas have, on average, experienced slower income growth than those that have not.
Why, then, would cities engage in such activities? This question is actually harder to answer than the former one because, more often than not, the reasons cited are not quantifiable. In other words, the reasons are not as easily measured as, say, costs, because they include many intangible variables, such as civic pride and political self-interest. Moreover, cities generally justify these decisions-and convince taxpayers of their virtue-with analyses that many economists consider suspect because the studies generally overlook some basic economic realities.
Not Always Built with Tax Dollars...
In 1862, William Cammeyer enclosed the Union Club Grounds in Brooklyn, NX and began charging admission, making it the first recorded baseball "stadium" in the United States. The facility was quite attractive to the fledgling sport of baseball because it enabled the exclusion of non-paying spectators and impressed the up-and-coming players, for whom teams were beginning to compete. By the time the National Association was formed in 1871, owners of such enclosed ballparks had a distinct advantage in the competition for teams.
In many ways, not much has changed since then. Teams today are still attracted by modern facilities, and cities go out of their way to provide them. In other ways, though, much has changed. Nowadays, facilities are not usually owned privately by individuals, but, rather, publicly by a government agency. And even though public financing of stadiums is a more common practice today, cities did pony up for a few of the older, well-known stadiums in times past.
Some prime examples of governmentowned stadiums from yesteryear are the Los Angeles Coliseum and Soldier Field, both of which are still in use today. Other famous venues, such as Fenway Park, Ebbets Field, Wrigley Field,Yankee Stadium and the original Comiskey Park, were all privately financed and owned. In fact, prior to World War IL of the 28 major league sports facilities that were built-for which data are available-- only five were paid for in part or whole with taxpayer dollars.' Since World War II, however, of the roughly 140 sports facilities that have been built or refurbished, only 14 did not use taxpayer dollars.
...But When They Are, Are They Worth It?
The dollars being invested in sports facilities are quite substantial considering the overall contribution the industry makes to the economy. In testimony before the U.S. Congress, economist Robert Baade said that Chicago's professional sports industry-which includes five teams-accounted for less than one-tenth of 1 percent of Chicago's 1995 personal income.3 Baade further commented that even when compared with the revenue of other industries, professional sports teams contribute small amounts to the economy. He noted, for example, that "the sales revenue of Fruit of the Loom exceed[ed] that for all of Major League Baseball (MLB), while the sales revenue of Sears [was] about thirty times larger than that of all MLB revenues."
