Foundation Briefs Advanced Level September/October Brief Resolved

Con Evidence

Stadiums Fail to Bring Large Economic Impact

This is an altogether too common problem in professional sports. Across the country, franchises are able to extract taxpayer funding to build and maintain private facilities, promising huge returns for the public in the form of economic development.

Time after time, politicians wary of letting a local franchise relocate -- as the NBA's Seattle Supersonics did, to Oklahoma City before the 2008-2009 season -- approve public funds, selling the stadiums as public works projects that will boost the local economy and provide a windfall of growth.

"The basic idea is that sports stadiums typically aren't a good tool for economic development," said Victor Matheson, an economist at Holy Cross who has studied the economic impact of stadium construction for decades. When cities cite studies (often produced by parties with an interest in building the stadium) touting the impact of such projects, there is a simple rule for determining the actual return on investment, Matheson said: "Take whatever number the sports promoter says, take it and move the decimal one place to the left. Divide it by ten, and that's a pretty good estimate of the actual economic impact."

Others agree. While "it is inarguable that within a few blocks you'll have an effect," the results are questionable for metro areas as a whole, Stefan Szymanski, a sports economist at the University of Michigan, said.

PUBLIC MONEY BALL

While Glendale First claims that more than 600,000 visitors -- three times Glendale's population -- came to the city for hockey last year, the Coyotes finished last in the NHL in attendance. And it is unclear how many of those visitors were, like Wyatt, residents of nearby communities who may patronize restaurants but don't spend money shopping or staying in hotels.

"It's not generating new revenue. This is local spending on a local event," Matheson said, adding that most of the money spent in and around arenas and stadiums would likely be spent elsewhere in the local economy if there were no sporting events to attend.

Though it is clear that new facilities are not a wise investment for taxpayers, the argument from Glendale First stems from the fact that Jobing.com Arena is already there. Refusing to use more public financing - and potentially allowing the Coyotes to leave for a new town - Wyatt said, would amount to the city turning its back on its initial investment and risking the failure of hotels, restaurants, and other businesses.

Why Sports Subsidies for Stadiums Fail to Produce Economic Benefits AMS

There now exists almost twenty years of research on the economic impact of professional sports franchises and facilities on the local economy. The results in this literature are strikingly consistent. No matter what cities or geographical areas are examined, no matter what estimators are used, no matter what model specifications are used, and no matter what variables are used, articles published in peer reviewed economics journals contain almost no evidence that professional sports franchises and facilities have a measurable economic impact on the economy.

Baade and Sanderson (1997) examined the employment created by sports facilities. The authors used data on employment from the Amusements and Recreation, and Commercial Sports Industry classifications of the Standard Industrial Classification for ten cities and their states covering the years 1958 through 1993. They estimated separate regressions for each city, with the dependent variable either the city’s share of state employment in the Amusements and Recreation or the city’s share of state employment in Commercial Sports. They found very little effect of newly constructed stadiums or from having additional professional teams on employment shares. When new stadiums were significant, their effect was to reduce the city’s share of employment. An additional team statistically significantly raised the city’s share in several cases, and reduced it significantly in one case. Thirteen of twenty coefficients for the number of teams were not statistically significant. Baade and Sanderson sum up their results by saying, “In general, the results of this study do not support a positive correlation between professional sports and job creation” (112).
Sports teams replace employment and income instead of generating it DAT

Coates, Dennis, and Brad R. Humphreys. “Do Economists Reach a Conclusion on Subsidies for Sports Franchises, Stadiums, and Mega-Events?” North American Association of Sports Economists. August 2008. Web.

Hudson (1999) examined the economic impact of professional sports on urban employment in 17 metropolitan areas over a twenty year period. This study used both the number of professional sports franchises in the metropolitan area and indicator variables for the presence of MLB, NFL, NBA and NHL franchises, as well as a variety of explanatory variables reflecting local wages, income, energy prices, population and taxes. None of the sports franchise variables were statistically significant, indicating that professional sports teams had no effect on employment in this sample of cities.

Coates and Humphreys (1999) examined the impact of professional sports on the level and growth rate of per capita income for all 37 metropolitan areas that had an NFL, MLB or NBA franchise over the period 1967-1994. This study included a vector of variables reflecting the “sports environment” in these metropolitan areas that included franchise indicator variables, new facility indicator variables, variables identifying the first ten years that a new franchise or facility was in a metropolitan area, stadium and arena capacities, and variables identifying periods after franchises left cities. The models contained metropolitan area fixed effects, a lagged dependent variable, and local population. Although few of the variables in the sports environment vector were individually significant, an F-test on the entire vector indicated that the variables were jointly significant, and the average effect on the level of real per capita income was negative. The sports environment vector was not significant in the regression that used the growth rate of real per capita income as the dependent variable. Coates and Humphreys (1999) concluded that professional sports had no positive effect on metropolitan area real per capita income and may have a negative effect.

Most sports venues aren’t in constant use; the average football stadium will barely hit double digits in us count for a given year. Given the extremely temporary nature of any facility use, stadiums cannot generate permanent income or employment, which is the most important consideration for analyses of economic growth. One can see why they would have a negative impact as well: stadiums have massive physical footprint. It takes a massive tract of land to house a stadium and its requisite infrastructure—feeder streets, parking, public transport connections, etc. This massive area is then being used to generate temporary jobs rather than for businesses which generate a more permanent impact.
Little Economic Impact AMS

Garofalo, Pat. “More Evidence Shows That Pro Teams Don’t Boost the Economy.” January 3, 2013. http://thinkprogress.org/economy/2013/01/03/1393781/bls-basketball-lockout/ Web. 20 Aug. 2014

But according to research published by the Bureau of Labor Statistics, having a pro sports team in town may be a net negative for the local economy. Paul Staudohar, professor emeritus of business administration at California State University, found in an examination of last year’s National Basketball Association lockout that shutting down sports leagues can be good for a city’s finances:

Even if the 2011–2012 season had been canceled, it likely would have had little, if any, effect on the economic health of the cities that host NBA teams. A 2001 study of past work stoppages found that, in 37 metropolitan area economies with professional sports franchises, there was no overall financial impact. Indeed, the cities appeared to perform better financially in years that games were canceled. There were other options that people spent their entertainment dollars on, in a substitution effect, while security needed for public safety at sporting events cost less because games were not played.

It is well known that unless there is significant import substitution, sports, arts or other institutions can have no net incremental regional effect on jobs, income and output if the audiences that it attracts are entirely localized, hence generating only diversions of spending from one sector to another without injecting any new economic activity into the region. Import substitution will occur if local residents would have spent a portion of their income outside the relevant region (typically on non-localized substitutes) had it not been for the existence of the local institution. A rare explicit measure of this effect was related to an event rather than an institution, when Gazel and Schwer (1997) identified 3,660 local Las Vegas residents attending a Grateful Dead (GD) concert (out of 4,134 such attendees) who “reported that they would travel someplace else to patronize the GD concerts in the absence of the show locally” (p. 49). O’Hagan (1992) provides another estimate of such import substitution related to an event in noting that about 10 per cent of Irish attendees of the Wexford Festival “indicated that they would have taken a holiday outside Ireland if the Festival had not been on” (p. 65).

Interestingly, there may be a reverse effect in what might be called “import enhancement” resulting from the development by local arts institutions of a greater interest in cultural consumption that then stimulates more tourist visits by local residents to non-local destinations to partially satisfy their demand for the arts. Thus, a reasonable conclusion is that, given the limited and contradictory evidence regarding import substitution, institutions that largely serve local audiences may generate substantial local consumption benefits, but will not generate any measurable output, income, jobs or tax revenue effects.

The difference between professional sports and something like a concert venue is that people likely cannot see professional sports (in person) if they’re not local; Seattle Supersonics fans weren’t road tripping en masse to OKC Thunder games when the team moved to Oklahoma, for instance. Based on the logic of this card, the absence of a publically-funded sports team in a city does not constitute an economic loss—fans wouldn’t be diverting their dollars outside a certain locale to see a professional team because this is simply a logistical impossibility.

The hidden costs of stadiums, Fj

Kuriloff, Aaron. “Stadiums Cost Taxpayers Extra $10 Billion, Harvard’s Long Finds” Bloomberg. November 6, 2012.

Taxpayers in the U.S. spent about $10 billion more on stadiums and arenas for professional sports teams than they forecast, according to a new book by Harvard University urban planning professor Judith Grant Long.

The costs of land, infrastructure, operations and lost property taxes add 25 percent to the taxpayer bill for the 121 sports facilities in use during 2010, increasing the average public cost by $89 million to $259 million, up from $170 million commonly reported by the sports industry and media, she writes in the book “Public/Private Partnerships for Major League Sports Facilities.”

Long’s analysis added costs such as those for land, infrastructure and lost tax revenue, while subtracting money that flows back to states or cities from revenue or rent payments.

Professional teams don’t heavily impact local economies, Fj

Chodosh, Jonah. “Take Me Out of the Ball Game: The Efficacy of Public Subsidies in the Success of Professional Sports Stadiums” Claremont McKenna College. 2011.

Interestingly, according to Keating (1999), the multiplier effect doesn’t exactly lead to the substantial impacts to large market economies, as promised. In New York, the comptroller estimates that all of the professional teams in the metropolitan New York City area account for a total of $1.15 billion in economic activity, based on generous multipliers (Keating 1994). This surmounts to only 0.3 percent of the regional economy, resulting from nine professional sports teams. In addition, these multipliers added to subsidies may not even be positive, as the average resident’s tax increases may cause total spending to be diminished (Keating 1994).

A team leaving doesn’t impact the local economy, Fj

DeMause, Neil. “Do cities gain from subsidizing sports teams?” Al Jazeera America. August 21, 2013.

 Even if the Pacers, say, had left town after being denied a new round of subsidies, studies indicate that the economic impacts would have been less than dire: When Humphreys and Dennis Coates of the University of Maryland looked at income data for cities that lost their teams, as well as during sports league strikes and lockouts, they found no significant effects. "The departure of a franchise in any sport," they wrote, "has never significantly lowered real per capita personal income in a metropolitan area."
Funding a stadium can wreck cities’ credit DAT

Gerardes, Randy. “Game’s On: Sports Facilities’ New Competition.” Wells Fargo Securities. 12 February 2013. Web. http://www.cdfa.net/cdfa/cdfaweb.nsf/pages/14889/$file/Game's%20On_Sports%20Facilities%20New%20Competition_021214.pdf

There have been a number of communities that expected significant increases to tax collections related to economic development anchored by stadium facilities. When revenues were less than projected, the municipality’s credit was negatively affected. For example, Harrison, N.J., invested $39 million to purchase land to build a $200 million arena for the MLS’s New York Red Bull; however, the economic downturn caused incremental tax revenues to be below estimates, increasing stress on the town’s general fund leading to a downgrade to Ba3 from Baa1 by Moody’s in May 2011. Hamilton County, Ohio, financed stadiums for both the Cincinnati Reds (MLB) and the Cincinnati Bengals (NFL) via sales tax secured debt in 1998. The final cost of Paul Brown Stadium, home to the Bengals, was approximately 25% higher than original estimates excluding infrastructure improvements. The higher stadium costs combined with sales tax revenue growth below projections due to poor economic conditions led Moody’s to downgrade the county’s sales tax supported bonds to A2 from A1 in May 2012. To make matters worse for the county, it agreed to cover a significant portion of operating costs for the stadium, which currently constitutes more than 16% of the county’s budget. Clearly in the case of Hamilton County, controversy stemmed from the risk allocation and revenue expectations as opposed to the project fundamentals of the stadium itself.