KARTHIK VEGESNA – APRIL 4, 2019
Sports fans can be irrational. To someone watching from the outside, fans’ behavior is puzzling: their fanatical, unwavering support, and emotional investment in their teams seem inexplicable. However, as an avid fan myself, I have realized that much of the true allure of sports is intangible. Rooting for your teams is largely based on where you live, and you derive a sense of belonging from being part of a community of irrational, borderline psychotic fans. However, professional sports are also a business. As such, team owners, most of whom are billionaires, profit off fans’ commitment by having local taxpayers foot the bill for stadiums that cost billions of dollars. This leads us to my primary question: is the economic impact of stadiums in local communities significant enough to warrant the entire community paying for it?
The reasoning behind public financing of stadiums is predicated upon a belief that new stadiums will create a significant impact on the local community through increased jobs in the short-run and increased spending through tourism over the long-run. The short-run impact can be significant, as seen with the Los Angeles Rams, whose new stadium in Inglewood is expected to “provide more than 3,500 on-site construction jobs in Inglewood and more than 10,000 jobs by the time it is completed.” However, many advocates of publicly-funded stadiums are banking on a “multiplier effect,” in which increased local income created through these construction jobs could lead to further spending, investment, and job creation, thereby creating a long-term benefit for the local economy. Another important reason why so many teams succeed in receiving public funding for stadiums is the threat of leaving and the corresponding dissatisfaction that residents have with the city after a team moves. For example, when Seattle refused to pay for a basketball stadium in the city, owner Clay Bennett decided to move the team to Oklahoma City, renaming his team from the Seattle Supersonics to the Oklahoma City Thunder. On that account, the idea of public financing is nuanced, but it is rooted on questionable economic ideals and intimidation of local residents.
Unfortunately, the subsidies have not created the local impact that they promised. To understand why, let’s consider the Atlanta Falcons’ new stadium, which cost $2 billion for construction—$700 million of which was paid by local taxpayers. While proponents may talk about a multiplier effect, several theoretical and empirical studies of local economic impact of stadiums have shown that beliefs that stadiums have an impact that matches the amount of money that residents pay are largely unfounded. The average stadium generates $145 million per year, but none of this revenue goes back into the community. As such, the prevalent idea among team owners of “socializing the costs and privatizing the profits” is harmful and unfair to people who are forced to pay for a stadium that will not help them.
Further, a study by Noll and Zimbalist on newly constructed subsidized stadiums shows that they have a very limited and possibly even negative local impact. This is because of the opportunity cost that goes into allocating a significant amount of money into a service like a stadium, rather than infrastructure or other community projects that would benefit locals. Spending $700 million in areas like education or housing could have long-term positive consequences with the potential for long-term increases in the standard of living and economic growth.
Additionally, it is important to consider that public financing is largely helping billionaires pay less for a service that they can afford. This dangerous precedent is an unnecessary privilege rather than a necessity. These sports teams are supported by successful owners who are capable of funding stadiums themselves. The owners will be compensated handsomely through the profits received through ticket sales, corporate advertising, and concessions over the next several decades. Public subsidies are an unfortunate power play used by these influential teams on local communities that are emotionally attached to sports teams, and a shift to making these projects private is going to be important moving forward.
Furthermore, stadium construction in college sports is indicative of the precedent in professional sports. College sports, especially in historic, blue-blood programs, can affect communities just as strongly as professional sports teams can. For example, the University of Alabama’s football program brought in $174 million in revenue in 2018, which is comparable to professional sports teams. However, Alabama was funded entirely by the school, carefully racking up profits before deciding to invest in a new stadium. Starting something similar in professional sports could lead to a system of self-sustenance and owners considering stadium costs when deciding to purchase a new team.
Over the last thirty years, building sports stadiums has served as a profitable undertaking for large sports teams, at the expense of the general public. While there are some short-term benefits, the inescapable truth is that the economic impact of these projects on their communities is minimal, while they can be an obstacle to real development in local neighborhoods.
Featured Image Source: Los Angeles Rams
Disclaimer: The views published in this journal are those of the individual authors or speakers and do not necessarily reflect the position or policy of Berkeley Economic Review staff, the Undergraduate Economics Association, the UC Berkeley Economics Department and faculty, or the University of California, Berkeley in general.
6 thoughts on “The Economics of Sports Stadiums: Does public financing of sports stadiums create local economic growth, or just help billionaires improve their profit margin?”
Great article, our local council along with Govt aid is about to waste NZD 500 mio on one in Christchurch. I bet the users wont pay for the total cost and thus its a loser for the many who will never ever go to it. Upshot is higher rates for all homeowners