Economic Impact Of Facilitys Essay Research Paper

Economic Impact Of Facilitys Essay, Research Paper

Economic Impact of Sports Stadiums

America is in the middle of a sports construction boom (Crompton 1). New sports facilities costing at least $200 million each have been finished or are under way in Baltimore, Charlotte, Chicago, Cincinnati, Cleveland, Milwaukee, Nashville, San Francisco, St. Louis, Seattle, Tampa, and Washington, D.C., and are in the planning stages in Boston, Dallas, Minneapolis, New York, and Pittsburgh. Major stadium renovations have been undertaken in Jacksonville and Oakland. Industry experts estimate that more than $7 billion will be spent on new facilities for professional sports teams before 2006.

Most of this $7 billion will come from public sources. The subsidy starts with the federal government, which allows state and local governments to issue tax-exempt bonds to help finance sports facilities. Tax exemption lowers interest on debt and so reduces the amount that cities and teams must pay for a stadium. Since 1975, the interest rate reduction has varied between 2.4 and 4.5 percentage points. Assuming a differential of 3 percentage points, the discounted present value loss in federal taxes for a $225 million stadium is about $70 million, or more than $2 million a year over a useful life of 30 years. Ten facilities built in the 1970s and 1980s, including the Superdome in New Orleans, the Silverdome in Pontiac, the now-obsolete Kingdome in Seattle, and Giants Stadium in the New Jersey Meadowlands, each cause an annual federal tax loss exceeding $1 million.

State and local governments pay even larger subsidies than Washington (Coates 601). Sports facilities now typically cost the host city more than $10 million a year. Perhaps the most successful new baseball stadium, Oriole Park at Camden Yards, costs Maryland residents $14 million a year. Renovations aren’t cheap either: the net cost to local government for refurbishing the Oakland Coliseum for the Raiders was about $70 million. Most large cities are willing to spend big to attract or keep a major league franchise. But a city need not be among the nation’s biggest to win a national competition for a team, as shown by the NBA’s Utah Jazz’s Delta Center in Salt Lake City and the NFL’s Houston Oilers’ new football stadium in Nashville.

The economic reasoning for cities’ willingness to subsidize sports facilities is revealed in the campaign slogan for a new stadium for the San Francisco 49ers: “Build the Stadium–Create the Jobs” (Baade 4)! Proponents claim that sports facilities improve the local economy in four ways. First, building the facility creates construction jobs. Second, people who attend games or work for the team generate new spending in the community, expanding local employment. Third, a team attracts tourists and companies to the host city, further increasing local spending and jobs. Finally, all this new spending has a “multiplier effect” (16) as increased local income causes still more new spending and job creation. Advocates argue that new stadiums urge so much economic growth that they are self-financing: subsidies are offset by revenues from ticket taxes, sales taxes on concessions and other spending outside the stadium, and property tax increases arising from the stadium’s economic impact.

Unfortunately, these arguments contain bad economic reasoning that leads to overstatement of the benefits of stadiums. Economic growth takes place when a community’s resources–people, capital investments, and natural resources like land–become more productive. Increased productivity can arise in two ways: from economically beneficial specialization by the community for the purpose of trading with other regions or from local value added that is higher than other uses of local workers, land, and investments. Building a stadium is good for the local economy only if a stadium is the most productive way to make capital investments and use its workers. A new sports facility has an extremely small (perhaps even negative) effect on overall economic activity and employment. No recent facility appears to have earned anything approaching a reasonable return on investment. No recent facility has been self-financing in terms of its impact on net tax revenues. Regardless of whether the unit of analysis is a local neighborhood, a city, or an entire metropolitan area, the economic benefits of sports facilities are minimum.

As stated, a stadium can spur economic growth if sports is a significant export industry–that is, if it attracts outsiders to buy the local product and if it results in the sale of certain rights (broadcasting, product licensing) to national firms. But, in reality, sports has little effect on regional net exports.

Sports facilities attract neither tourists nor new industry. Probably the most successful export facility is Oriole Park, where about a third of the crowd at every game comes from outside the Baltimore area (Coates 601). Even so, the net gain to Baltimore’s economy in terms of new jobs and incremental tax revenues is only about $3 million a year (601)–not much of a return on a $200 million investment.

Sports teams do collect substantial revenues from national licensing and broadcasting, but these must be balanced against funds leaving the area. Most professional athletes do not live where they play, so their income is not spent locally. Moreover, players make infla