The Impact of Stadium Subsidies on Urban Economic Development

 
Getting Into the Game:
Sport as a
 
Stimulus for Urban Economic Development
 
for the Public Affairs Forum Sponsored by the Federal Reserve Bank of Atlanta
Birmingham, Alabama on July 17, 2014
 
By:
Robert A. Baade
A.B. Dick Professor of Economics, Lake Forest College and
President Emeritus, International Association of Sports
Economists (IASE)
 
Purpose: Is commercial sport a
catalyst for urban economic
development?
 
COMMERCIAL SPORT IS HEAVILY
SUBSIDIZED IN THE US
 
The real demand is for luxury boxes, not more seats.  So the
average working person is asked to put a tax on their home or
pay sales or some other consumer tax to build luxury boxes in
which they cannot afford to sit.  Frequently, the new stadium
is smaller.  The working person is asked to be satisfied with
“sense of pride” they get from this arrangement, which will
last until another team bids more for their players, or until
another city bids for the team.
Houston Mayor, Bob Lanier
Testimony Before the Senate
Judiciary Committee
November 29, 1995
 
Stadiums Built/Proposed
 
Number of stadiums
 
Cost of Stadiums
 
Millions of 2007 dollars
 
Percentage Financed by Public
 
Percent
 
Who benefits from
stadium subsidies?
 
Owners?
 
Players?
 
Fans?
 
Proportion of Facilities Financed
by the Public and Private Sectors by League and the
Impact of New Facilities on Revenues and Incomes by League
 
Leagues building
 
 Average total
 
 
Contribution (%)
 
        Incremental         Incremental
new venues
 
 cost ($m)*
 
Public       Private
 
        revenues ($m)      incomes ($m)
______________________________________________________________________________________
Major League Baseball
 
269
 
 77              23
 
        19.1
 
     12.7
National Basketball Association      
 
1
69
 
 31              69
 
        17.4
 
     5.4
National Football League
 
257
 
 74              26
 
        18.8
 
     12.0
National Hockey League (NHL)     
 
148
 
 42              58
 
        15.7
 
     7.7
Shared NBA and NHL facilities
 
191
 
 11              89
 
        20.3
 
     11.6
 
 
________________________________________________________________________________
Team (year new
  
Team payroll
 
Total payroll
 
Total payroll
 
Total payroll
 
Total payroll)
stadium opened: 
t
)
  
for year 
t
  
t  
- 2
  
t 
 - 1
  
t 
+ 1
  
t 
+ 2
   
(% of payroll 
t
)
 
(% of payroll 
t
)
 
(% of payroll 
t
)
 
(% of payroll 
t
)
________________________________________________________________________________
Arizona (1998)
  
29.16
  
n.a.
  
n.a.
   
70.37
   
77.88
          
(241)
   
(267)
Atlanta (1997)
  
50.49
  
45.2
  
47.93
   
59.54
   
75.07
     
(90)
  
(95)
   
(118)
   
(149)
Baltimore (1992)
  
20.99
  
10.04
  
14.63
   
26.92
   
37.67
     
(48)
  
(70)
   
(128)
   
(179)
Chicago White Sox 
(1991)
  
16.83
   
7.60
   
9.49
   
28.41
   
34.60
     
(45)
  
(56)
   
(169)
   
(206)
Cleveland (1994)
  
28.49
   
8.24
  
15.72
   
35.19
   
45.32
     
(29)
  
(55)
   
(124)
   
(159)
Colorado (1995)
  
31.15
   
8.83
  
22.98
   
34.92
   
42.87
     
(28)
  
(74)
   
(112)
   
(138)
Detroit (2000)
  
61.74
  
22.63
  
34.96
   
49.36
   
55.05
     
(37)
  
(57)
   
(80)
   
(89)
Houston (2000)
  
52.36
  
40.63
  
55.29
   
60.39
   
63.45
     
(78)
  
(106)
   
(115)
   
(121)
Milwaukee (2001)
  
45.10
  
42.93
  
35.78
   
50.29
   
40.63
     
(95)
  
(79)
   
(112)
   
(90)
Pittsburgh (2001)
  
57.76
  
24.22
  
29.56
   
42.32
   
54.81
     
(42)
  
(51)
   
(73)
   
(95)
San Francisco (2000)
  
53.54
  
40.32
  
46.06
   
63.28
   
78.30
     
(75)
  
(86)
   
(118)
   
(146)
Seattle (1999)
  
44.37
  
39.67
  
52.03
   
59.22
   
74.72
     
(89)
  
(117)
   
(133)
   
(168)
Texas (1994)
  
32.42
  
29.74
  
35.64
   
32.37
   
35.86
     
(92)
  
(110)
   
(100)
   
(111)
Average
     
(57)
   
(73)
   
(125)
   
(147)
_________________________________________________________________________________
 
MLB Payrolls ($m) Before and After New Stadiums Built Between
1991 and 2001
 
______________________________________________________________________________
Team (year new
 
Ticket prices
 
Ticket prices
 
Ticket prices
 
Ticket prices
 
Ticket prices
Stadium opened: 
t
)
 
for year 
t
  
  
t
 - 2
  
t 
- 1
  
  
t
 + 1
 
t
  + 2
  
(% of prices 
t
)
 
(% of prices 
t
)
 
(% of prices 
t
)
 
(% of prices
 t
)
______________________________________________________________________________
Atlanta (1997)
  
15.54
    
12.00
    
13.06
    
17.78
   
19.21
       
(77)
     
(84)
    
(114)
   
(124)
Baltimore (1992)
   
9.65
     
n.a.
    
10.30
    
11.12
   
11.12
            
(107)
    
(115)
   
(115)
Chicago White Sox (1991)
  
10.28
     
n.a.
     
n.a.
    
11.70
   
11.70
                 
(114)
   
(114)
Cleveland (1994)
  
12.06
     
7.70
     
8.70
    
12.06
   
14.52
        
(64)
     
(72)
    
(100)
   
(120)
Colorado (1995)
  
10.61
     
7.91
    
  7.90
    
10.61
   
11.38
        
(75)
     
(74)
    
(100)
   
(107)
Detroit (2000)
  
24.83
    
10.40
    
12.23
    
23.90
   
20.44
        
(42)
     
(49)
     
(96)
    
(82)
Houston (2000)
  
20.01
    
11.88
    
13.30
    
20.03
   
18.87
        
(59)
     
(66)
    
(100)
    
(94)
Milwaukee (2001)
  
18.12
    
11.02
    
11.72
    
17.63
    
n.a.
        
(60)
     
(65)
    
 
(97)
Pittsburgh (2001)
  
21.48
    
10.71
    
11.80
    
19.51
    
n.a.
        
(50)
     
(55)
    
 
(91)
San Francisco (2000)
  
21.24
    
11.47
    
12.12
    
23.38
  
 
20.84
        
(54)
     
(57)
    
(110)
    
(98)
Seattle (1999)
  
23.42
    
14.94
    
19.01
    
23.38
   
24.60
        
(64)
     
(81)
    
(100)
   
(105)
Texas (1994)
  
12.07
     
8.93
     
8.93
    
12.07
   
11.96
        
(74)
     
(74)
    
(100)
    
(99)
Average
  
16.71
     
(60)
     
(66)
    
(102)
   
(104)
_______________________________________________________________________________
 
Ticket Prices Before and After New Stadiums Built Between 1991 and 2001
 
Do cities and regions benefit from
sports subsidies?
 
Ex ante 
analysis
 
 
Minnesota lawmakers heard last month that a
$954 million Vikings stadium would employ 8,000
construction workers
 another 5,400 people
supported by construction-related spending and
3,400 in the new facility. Team vice president
Lester Bagley called it a "significant jobs and
economic stimulus package.
"
 
(Associated Press, March 5, 2009)
 
Ex ante 
or prospective analysis is difficult.
 
Precise estimates require extensive knowledge
on the way different sectors of the economy
interact.
 
Despite the best efforts of economists, a model
that explains urban economic growth within
acceptable margins of error eludes the
profession.
 
That reality makes all 
ex ante 
analysis somewhat
suspect.
 
Why 
ex post
 analysis is necessary to
evaluate the efficacy of commercial
sports subsidies?
 
Empirical Results
 
Economic Impact Estimates Provided by Boosters for Selected Teams,
Facilities, and Events
 
Quality of life and compensating
differentials arguments
 
 
Economists know the price of everything and the value of
nothing.
---Oscar Wilde
 
What do contingent valuation
studies tell us?
 
Compensating differentials
 
Entertainment village in Ottawa, Canada: Project would include
offices, restaurants, bars, apartments, hotels for area near Senators’
arena
 
The new Yankee Stadium in New York
Conclusions and policy
implications
 
 
The sum total of the evidence does not suggest that sport subsidies
standing alone produce social value in excess of their social costs.
 
As part of a larger redevelopment plan, expenditures
on teams, facilities, and sports mega-events may
induce an increase in economic activity in the urban
core, but that may come at the expense of other parts
of the metropolitan or regional economies.
 
Finally, since the preponderance of evidence does not support the
notion that subsidies for sport alone can serve as catalysts for
economic development, subsidy debates should focus on the public
benefits as they relate to the enhanced quality of life imparted by
teams, facilities, and sports mega-events.
 
Future research should focus on techniques for estimating the
hedonic component of subsidies for sport, and both the
contingent valuation method and estimates for compensating
differentials show promise in that regard.
 
Moon Landrieu may have been right:  
It is the very building of it that
is important, not how much it is used or its economics.
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Stadium subsidies for commercial sports, particularly in the US, have raised concerns about their impact on urban economic development. Many stadiums are heavily subsidized, shifting costs onto the public to fund luxury boxes rather than more seats. This allocation of resources raises questions about who truly benefits from these subsidies - owners, players, or fans. The division between public and private financing, as well as the construction of new sporting venues, further complicates the economic implications of such subsidies.


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  1. Getting Into the Game: Sport as aStimulus for Urban Economic Development By: Robert A. Baade A.B. Dick Professor of Economics, Lake Forest College and President Emeritus, International Association of Sports Economists (IASE) for the Public Affairs Forum Sponsored by the Federal Reserve Bank of Atlanta Birmingham, Alabama on July 17, 2014

  2. Purpose: Is commercial sport a catalyst for urban economic development?

  3. COMMERCIAL SPORT IS HEAVILY SUBSIDIZED IN THE US The real demand is for luxury boxes, not more seats. So the average working person is asked to put a tax on their home or pay sales or some other consumer tax to build luxury boxes in which they cannot afford to sit. Frequently, the new stadium is smaller. The working person is asked to be satisfied with sense of pride they get from this arrangement, which will last until another team bids more for their players, or until another city bids for the team. Houston Mayor, Bob Lanier Testimony Before the Senate Judiciary Committee November 29, 1995

  4. Stadiums Built/Proposed Number of stadiums 35 30 25 20 15 10 5 0

  5. Cost of Stadiums Millions of 2007 dollars 10000 9000 8000 7000 6000 5000 4000 3000 2000 1000 0

  6. Percentage Financed by Public Percent 100 90 80 70 60 50 40 30 20 10 0 1900-391940-591960-691970-791980-891990-952001-052006-10

  7. Who benefits from stadium subsidies?

  8. Owners?

  9. Players?

  10. Fans?

  11. Proportion of Facilities Financed by the Public and Private Sectors by League and the Impact of New Facilities on Revenues and Incomes by League Leagues building new venues ______________________________________________________________________________________ Average total cost ($m)* Contribution (%) Public Private Incremental Incremental revenues ($m) incomes ($m) Major League Baseball National Basketball Association 169 National Football League National Hockey League (NHL) 148 269 77 23 31 69 74 26 42 58 11 89 19.1 17.4 18.8 15.7 20.3 12.7 5.4 12.0 7.7 11.6 257 191 Shared NBA and NHL facilities

  12. MLB Payrolls ($m) Before and After New Stadiums Built Between 1991 and 2001 ________________________________________________________________________________ Team (year new Team payroll Total payroll stadium opened: t) for year t t - 2 (% of payroll t)(% of payroll t) ________________________________________________________________________________ Arizona (1998) 29.16 n.a. Total payroll t - 1 Total payroll t + 1 (% of payroll t)(% of payroll t) Total payroll) t + 2 n.a. (241) 47.93 (95) 14.63 (70) 9.49 (56) 15.72 (55) 22.98 (74) 34.96 (57) 55.29 (106) 35.78 (79) 29.56 (51) 46.06 (86) 52.03 (117) 35.64 (110) (73) 70.37 (267) 59.54 (118) 26.92 (128) 28.41 (169) 35.19 (124) 34.92 (112) 49.36 (80) 60.39 (115) 50.29 (112) 42.32 (73) 63.28 (118) 59.22 (133) 32.37 (100) (125) 77.88 Atlanta (1997) 50.49 45.2 (90) 10.04 (48) 7.60 (45) 8.24 (29) 8.83 (28) 22.63 (37) 40.63 (78) 42.93 (95) 24.22 (42) 40.32 (75) 39.67 (89) 29.74 (92) (57) 75.07 (149) 37.67 (179) 34.60 (206) 45.32 (159) 42.87 (138) 55.05 (89) 63.45 (121) 40.63 (90) 54.81 (95) 78.30 (146) 74.72 (168) 35.86 (111) (147) Baltimore (1992) 20.99 Chicago White Sox (1991) 16.83 Cleveland (1994) 28.49 Colorado (1995) 31.15 Detroit (2000) 61.74 Houston (2000) 52.36 Milwaukee (2001) 45.10 Pittsburgh (2001) 57.76 San Francisco (2000) 53.54 Seattle (1999) 44.37 Texas (1994) 32.42 Average _________________________________________________________________________________

  13. Ticket Prices Before and After New Stadiums Built Between 1991 and 2001 ______________________________________________________________________________ Team (year new Ticket pricesTicket prices Ticket prices Ticket prices Ticket prices Stadium opened: t) for year t t - 2 (% of prices t) (% of prices t) (% of prices t) (% of prices t) ______________________________________________________________________________ Atlanta (1997) 15.54 12.00 (77) Baltimore (1992) 9.65 n.a. t - 1 t + 1 t + 2 13.06 (84) 10.30 (107) n.a. 17.78 (114) 11.12 (115) 11.70 (114) 12.06 (100) 10.61 (100) 23.90 (96) 20.03 (100) 17.63 (97) 19.51 (91) 23.38 (110) 23.38 (100) 12.07 (100) (102) 19.21 (124) 11.12 (115) 11.70 (114) 14.52 (120) 11.38 (107) 20.44 (82) 18.87 (94) n.a. 10.28 n.a. Chicago White Sox (1991) Cleveland (1994) 12.06 7.70 (64) 7.91 (75) 10.40 (42) 11.88 (59) 11.02 (60) 10.71 (50) 11.47 (54) 14.94 (64) 8.93 (74) (60) 8.70 (72) 7.90 (74) 12.23 (49) 13.30 (66) 11.72 (65) 11.80 (55) 12.12 (57) 19.01 (81) 8.93 (74) (66) Colorado (1995) 10.61 Detroit (2000) 24.83 Houston (2000) 20.01 Milwaukee (2001) 18.12 Pittsburgh (2001) 21.48 n.a. 20.84 (98) 24.60 (105) 11.96 (99) (104) San Francisco (2000) 21.24 Seattle (1999) 23.42 Texas (1994) 12.07 Average _______________________________________________________________________________ 16.71

  14. Do cities and regions benefit from sports subsidies?

  15. Ex ante analysis Minnesota lawmakers heard last month that a $954 million Vikings stadium would employ 8,000 construction workers another 5,400 people supported by construction-related spending and 3,400 in the new facility. Team vice president Lester Bagley called it a "significant jobs and economic stimulus package." (Associated Press, March 5, 2009)

  16. Ex ante or prospective analysis is difficult. Precise estimates require extensive knowledge on the way different sectors of the economy interact. Despite the best efforts of economists, a model that explains urban economic growth within acceptable margins of error eludes the profession. That reality makes all ex ante analysis somewhat suspect.

  17. Why ex postanalysis is necessary to evaluate the efficacy of commercial sports subsidies?

  18. Empirical Results

  19. Economic Impact Estimates Provided by Boosters for Selected Teams, Facilities, and Events Year of Study 1992 1995 1996 Team, Facility, or Event Area Measured Impact ($millions) NBA All Star Game Summer Olympic Games Cincinnati Reds (MLB) Old Stadium* Metro Orlando Metro Atlanta Metro Cincinnati 35a 5,142b 158c 1996 1998 1999 Cincinnati Reds New Stadium* Arizona Diamondbacks Super Bowl Metro Cincinnati Metro Phoenix South Florida (Miami, Dade and Broward Counties) Metro Boston 192c 319c 396d 1999 Boston Red Sox (MLB) Current Stadium* Boston Red Sox New Stadium* San Antonio Spurs (NBA) 120c 1999 1999 Metro Boston Metro San Antonio Metro Dallas MetroHouston Countries of Japan and South Korea 186c 71c 1999 2000 2001 Summer Olympics Dallas Houston Rockets (NBA) World Cup Soccer 4,000e 187c 24,800 (Japan) 8,900 (S. Korea)f

  20. Quality of life and compensating differentials arguments Economists know the price of everything and the value of nothing. ---Oscar Wilde

  21. What do contingent valuation studies tell us?

  22. Compensating differentials Entertainment village in Ottawa, Canada: Project would include offices, restaurants, bars, apartments, hotels for area near Senators arena

  23. The new Yankee Stadium in New York

  24. Conclusions and policy implications The sum total of the evidence does not suggest that sport subsidies standing alone produce social value in excess of their social costs. As part of a larger redevelopment plan, expenditures on teams, facilities, and sports mega-events may induce an increase in economic activity in the urban core, but that may come at the expense of other parts of the metropolitan or regional economies.

  25. Finally, since the preponderance of evidence does not support the notion that subsidies for sport alone can serve as catalysts for economic development, subsidy debates should focus on the public benefits as they relate to the enhanced quality of life imparted by teams, facilities, and sports mega-events. Future research should focus on techniques for estimating the hedonic component of subsidies for sport, and both the contingent valuation method and estimates for compensating differentials show promise in that regard. Moon Landrieu may have been right: It is the very building of it that is important, not how much it is used or its economics.

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