Stadiums as Public Investments
After 55 years in the Bay area, the Oakland A’s are moving forward with a plan to move to Las Vegas, supported by an explicit public subsidy of $380 million to help build a new ballpark on the strip and new stadiums are being considered in Phoenix and San Antonio. These are just the most recent cases in a long-standing trend: Local governments have provided hundreds of millions of dollars in direct and indirect public subsidies to build professional sports facilities over the past 70 years in the United States. These facilities open new revenue sources and raise the asset value of the franchises for the private and wealthy owners of the sports teams. But does the use of public funds make sense for the host cities and counties?
Most studies find that building professional stadiums does not promote local employment or per capita income growth.
- Between 1970 and 2020, state and local governments devoted approximately $33 billion in public funds to construct major-league sports venues in the United States and Canada. During this 50-year period, 135 new or replacement stadiums and arenas hosting teams opened, representing an average of 2.6 new venues per year for teams in North America's four major sports leagues: Major League Baseball (MLB), the National Basketball Association (NBA), the National Football League (NFL), and the National Hockey League (NHL). The estimated median public contribution between 1970-2020 covered 73 percent of venue construction costs, according to a 2022 survey of studies on the impact of professional sport venues on local economies. As stadiums and arenas have grown more elaborate and construction costs have skyrocketed however, the share of the costs covered by public funds has been decreasing from close to 100 percent in the 1970s to an estimated median share of 44.2 percent in the 2010s.
- The success of professional teams in obtaining public subsidies for stadiums rests in part on the fact that the entry of new teams is restricted. There is only one producer of major league baseball, of major league football, of men’s major league basketball, of major league hockey and of men’s major league soccer in the United States. The growth in the number of sports teams in each league has lagged considerably the growth in population and income. For example, at the beginning of the modern era in baseball, 1903, there were 16 teams. There remained only 16 teams until 1961. In the interim, the U.S. population grew 2.4 times and real GDP per capita grew approximately 2.8 times. Thus, the demand for hosting teams increased exponentially but the number of teams stayed the same. In contrast, in European soccer, where the leagues are open (i.e., teams can rise from lower-level leagues to higher level leagues by strong on-field performance) and market forces dictate how many teams there are in each city (there are, for instance, six Premier League teams in greater London), it Is very difficult for teams to induce the cities to compete against each other to host a team. The outcome is that, with few exceptions, new facilities or renovations of existing ones in Europe receive no or very little public financing.
- Teams’ ability to extract larger and larger public subsidies, however, did not become apparent until teams began to explore the opportunity to move to different cities. No major league baseball team had moved between 1903 and 1953, when the Boston Braves moved to Milwaukee. The St. Louis Browns followed by moving to Baltimore the next year; the Philadelphia A’s moved to Kansas City the next, and, of course, the Brooklyn Dodgers and New York Giants moved to Los Angeles and San Francisco, respectively, in 1958. As teams demonstrated a willingness to move, there were other new cities, grown in size and income, ready to compete and pay to attract existing teams. In the current case of the Oakland A’s, Oakland has countered with a proposed 35,000-seat waterfront ballpark with a $475 million public financing component as the team’s relocation to Nevada goes through Major League Baseball’s approval process.
- Construction of new facilities does not necessarily result from existing ones becoming obsolete. Shifts have corresponded with urban trends. In the 1960s-1970s, stadium location began to shift from the central city to the suburbs as a greater share of wealth and population was located there, leading to an era of cookie-cutter stadiums surrounded by huge parking lots. This trend shifted again in 1992 with the construction of Camden Yards in downtown Baltimore. The Orioles president at the time, Larry Lucchino, reasoned that locating a facility adjacent to the city’s central business district, rather than in the suburbs, would bring the business community to the ballpark at the end of the workday. By putting a nice restaurant or two within the stadium, catering facilities, along with expanded luxury boxes and club sections, the team would be able to attract higher income clientele – raising the value of in-facility advertising and corporate sponsorships, as well as lifting the sale of alcohol and food. Camden Yards was an enormous success and soon other teams demanded new stadiums from their host cities.
- What do cities and counties get in return for their public investment? Scholarly econometric studies on the impact of professional sports stadiums are almost unanimous in their conclusion that they do not promote employment or per capita income growth (see here and here). Despite the outsized role they play in U.S. cultural life and in the media, professional sports teams are small- to modest-sized enterprises. A typical NFL team might employ 125 to 175 full-time people in its front office and an additional 2,000 game-day employees for 4 hours, 10 days a year. If we consider the total annual revenues generated by a sports team relative to its host city’s GDP, the team contributes between one-third and one-twentieth of one percent to the local area economy. Moreover, spending on sport games does not imply new net spending within the metropolitan area. Most residents have a budget. When they spend, say, $200 dollars to take their family to a game, it is $200 that they do not have to spend at a restaurant, a theater, a bowling alley or other entertainment venues. And, the lion’s share of the income goes to the players, the coaches, the top executives and the team owners who are less likely to spend the bulk of their earnings in the stadium’s metropolitan area.
- Depending on the financing deal between the city and the team, the local government can experience a fiscal loss; that is, the public cost may exceed the new public revenue from the facility construction. Such a fiscal hole has to be filled, either by lower spending on services or by increased local taxes, each having a depressing effect on local economic activity. The possibility of a fiscal hole depends on the financing plan and the city’s characteristics. Although economists don’t always agree on the fiscal impact of specific stadium projects, they do agree that careful planning and financial caution are imperative. Politicians often claim that there will be no new taxes on the residents resulting from the public financing of the stadium. They allege that the plan will use “tourist taxes”, implying that the tax burden will fall on visitors, not residents. On examination this is illusory. Tourist taxes include hotel and car rental taxes. When these taxes are raised, there are two possibilities: (a) they will discourage visitors from traveling to the city or (b) they won’t discourage visitors. In the former case, there will be a negative effect on economic activity and tax revenues could actually decline. In the latter case, tax revenues would increase, but these taxes could be levied without financing a new stadium and used either to lower resident taxes or to increase local services. So, tourist taxes are not a free good to local residents. Another misleading assertion is connected to the use of Tax Increment Financing (TIF). TIFs can take a variety of forms, but the basic structure is that the city declares a special tax district surrounding the stadium and adjacent streets, sometimes with a radius of a mile or more. The city then uses the tax revenue collected within this district to finance the debt service on a stadium bond that it issued. The problem here is twofold: some of the district’s tax revenue would have been generated without the new stadium and some of the new activity within the district comes from businesses relocating to within it. In the latter instance, tax revenue increases within the district, but it decreases outside the district.
- There is also the issue of opportunity cost. If the stadium were not built, would the allotted acreage sit idle or would it be developed for other purposes, and what would those purposes be? Most sports facilities are owned publicly with the team owner having a master lease. Because the stadium is not privately owned, there is no property tax (though some teams make payments in lieu of taxes, PILOTS). Were the land used for other private development, the city would generally receive property taxes. (Note that private development also brings tax exemptions and zoning privileges in many cases.) Further, the city often takes on additional financial responsibilities for the stadium over time, such as capital contributions, infrastructure maintenance, traffic control, and security.
What this Means:
Of course, having a new stadium and a professional team in one’s city is not only an economic event. After all, cities build public parks, not because they expect the park will yield a fiscal or employment gain, but because they enrich the city’s culture (and improve the air quality). Sports teams bring people together and help to form communities. If a stadium project can come close to fiscal neutrality, then the cultural benefit may commend the project. If the project falls short fiscally, then the residents should be accurately informed about what the fiscal cost will be and make the decision about whether or not to go forward. There is a clear distinction between building a stadium for a privately-owned team and building a public park. In both cases there are socio-cultural benefits, but in the sports facility case a good deal of the benefit is appropriated by the team owner and its players. From the perspective of team owners, their competitors have gotten stronger from public subsidies and they feel that in order to compete effectively, they too need to receive the subsidies. It is a bit of a vicious cycle and no one has quite figured out how to stop it.