Since long enough to see many of their

Since
the late 1950s, the sports industry has experienced a prolonged economic boom.
Revenues from attendance, broadcasting, and concessions have shown rapid,
steady growth. Meanwhile, the proportion of team revenues needed to cover
stadium costs has declined because of the increasing eagerness of state and
local governments to compete for teams by subsidizing them. In response to these
attractive financial prospects, the industry has burgeoned. Established leagues
have created new teams, and new leagues have emerged in all the major
professional sports, with several surviving long enough to see many of their
teams incorporated into existing leagues. This trend in the number and expense
of tax-payer stadiums raises several related questions. First, who actually
pays for stadiums, and who benefits from them? Second, what are the effects of
teams and stadiums on a metropolitan area, a city, and its local neighborhood? Third,
why do cities subsidize sports facilities, and what determines the amount of
subsidy a team receives? And most importantly, are these facilities worth it:
to the teams, the leagues, and the cities that foot part of the bill? This
paper will answer these questions, as well as provide a conclusive answer as to
whether the economic benefits outweigh the costs.

The
United States is clearly experiencing a sports construction boom. Industry experts estimate that more than $20 billion will be spent on new
sports facilities before 2020 (Florida). pa1 Legerdemain
notwithstanding, much of this money will come from public sources; the average
subsidy from a host city to its sports team most likely will exceed $10 million
a year (Heller).pa2 
Although some of this support might rationally flow in recognition of the
positive externalities engendered by sports teams, for the most part it is made
necessary by the noncompetitive structure of the U.S. team sports industry.
Major sports leagues are monopolies. They maximize the profits
of their members by keeping the number of franchises below the number of cities
that are economically viable locations for a team (Fort). pa3 As
a result, cities are thrust into competition with one another to procure or to
retain teams. The form this competition takes is a bidding war, whereby cities
bid their willingness to pay to have a team, not the minimum amount that would
be necessary to keep a team viable. The tendency of sports teams to seek more
hospitable venues has been exacerbated in recent years by new stadium
technology as well. Replacing the rather ordinary cookie-cutter, concrete slab,
multipurpose facility of the 1960s and 70s is the single-sport, more
aesthetically pleasing facility that features numerous new revenue
opportunities: luxury suites, club boxes, elaborate concessions, catering,
signage, parking, advertising, theme activities, and even bars, restaurants,
and apartments with a view of the field. Depending on the sport and
the circumstance, a new stadium or arena can add anywhere from $10 to $30
million a year to a team’s revenues for the first few years after the stadium
is constructed (Zimbalist and Noll).pa4 
Consequently, new stadiums can be so alluring to a team that demographically
lesser cities with new stadiums (such as Charlotte, Jacksonville, and
Nashville) can compete effectively for teams against larger cities with older
stadiums. The new stadium technology, by enhancing revenue opportunities, can
increase the number of cities that are economically viable franchise sites,
thereby exacerbating the imbalance between the supply and demand for sports
franchises. This imbalance, in turn, leads cities imprudently to offer the
kitchen sink in their effort to retain existing teams or to attract new ones. Including site acquisition and supporting infrastructure, a new stadium
costs at least $200 million, and in most cases much morepa5 
(“Stadium of the Year…”). To date, the most expensive stadiums have
been in the range of $600 million to $800 million, although Los Angeles is
contemplating a home for the Rams that will cost about $2.6 billion. pa6 Furthermore,
when a state government becomes involved in financially supporting the effort,
it generally requires the approval of parallel pork projects elsewhere in the
state to secure the necessary votes in the legislature. Teams do not have
sufficient revenues from their own sources to pay for investments in stadiums
of this magnitude. A sports franchise is simply too small and earns too little
profit to pay the full cost of even a $200 million facility. But, of course, in
recent years almost no team has had to pay the full cost of its playing facility.
Local and state governments bear part—and sometimes virtually all—of the
stadium costs. Usually the stadium lease is so favorable to the team that the
city cannot cover its incremental debt service with rent and other stadium
revenues. Indeed, the city must not receive enough direct revenues
from the stadium to recover its debt cost or the debt that finances the
facility will not qualify for the federal tax exemption on municipal bonds
(“About Municipal Bonds”). pa7 While
the public ends up paying for a substantial part of most stadiums, highly paid
players and wealthy owners divide nearly all the millions in extra revenue.
Since public financing often comes in the form of regressive sales taxes or
lottery revenues, the distributional consequences of stadium projects are not
salutary for those concerned with inequality.  

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Three
questions might be asked about the economic impact of a professional sports
team or facility: Does it promote the general economic development of a
metropolitan area? Can it significantly assist in maintaining the vitality of
the central city? Can it stimulate micro development in a small, defined
district within a city? The studies in this field uniformly conclude that
metropolitan and central city economic development is not likely to be affected
by a sports team or facility. Whether core centrality or micro development can
be supported by a team or facility will depend on a number of factors: the
development plan; the areas physical, economic, and demographic characteristics,
and the facility’s financing and lease arrangements. But even under the best of
circumstances, any such effect is modest at best. These results are in sharp
contrast to the claims of the dozens of promotional studies that have been
performed by consulting firms under contract with the affected city or team.
Predictably, their reports conclude that a sports team produces a substantial,
positive impact. Yet their analyses are fraught with methodological
difficulties. First, they often confuse new spending with spending that is
diverted from other local activities. Second, they attribute all spending by
out-of-town visitors to the sports team regardless of the motive for the visit.
Third, they overstate the multiplier by ignoring crucial characteristics of
sports spending. Fourth, they apply this inflated multiplier to gross spending,
rather than local value added. Fifth, they omit the negative effects from the
taxation that is used to finance construction and operating deficits of the
facility. When these erroneous factors are removed, the net economic gain is
shown to be minimal if not negative; two of the most widely accepted
peer-reviewed studies on the economic impacts of tax-payer subsidized stadiums
were conducted prior to, during and after the construction of Oriole Field in
Baltimore, Maryland. One estimated that the new stadium would generate 1,394 full-time equivalent jobs, for a cost per job of $127,000; the other
estimated 534 jobs, for a cost per job of $331,000 (Davidson).pa8  In
contrast, the cost per job generated by the incentive program of the Maryland State
Economic Development Agency is only $6,250 (“Stadiums.”). To the extent that a
new stadium is a central element of an urban redevelopment plan and its
location and attributes are carefully set out to maximize synergies with local
business, and to the extent that the terms of its lease are not negotiated
under duress and are relatively fair to the city, the local community may
derive some modest economic benefit from a sports team. The problem is that
these two conditions rarely apply to monopoly sports leagues. Cities are forced
to act hastily under pressure and to bargain without any leverage. Properly
reckoned, the value of a sports team to a city should not be measured in
dollars of new income but should be appreciated as a potential source of
entertainment and civic pride that comes with a substantial net cost.

It
is difficult to see an end to the growing public subsidization of sports
facilities despite the inherent flaws. Whereas the superficial explanations for
this phenomenon lie in the details of federal, state, and local politics, the
ultimate reason can be found by looking in the mirror. Professional sports in
the United States are subsidized because they are very popular monopolies.
While grass roots movements in local areas may achieve modest successes in
slightly altering the terms of stadium subsidies, until the structural monopoly
and cultural centrality are modified, large-scale public subsidies to wealthy
team owners and athletes will be a feature of the professional sports