Thursday, April 15, 2010

Twins Fever Infects the Minnesota Legislature

With the Twins’ home opener at target field this week talk of a deal on a new Vikings stadium at the State Legislature emerged. By Thursday Governor Pawlenty described the prospects for a publicly supported stadium possible but unlikely.
Regardless of the Governor’s prognosis, why are we even talking about public commitments for a stadium when the state is billions in the hole?

Perhaps the biggest argument made for the stadium is done so on economics. Does it make sense for a city or community to fund the construction of a new sports stadium in order to stimulate economic development? Listening to sports reporters, team owners, and many elected officials, the answer is yes. Yet while it may be fun to root, root, root, for the old ball team , does it make economic sense for the public to provide tax dollars to pay, pay, pay to for new stadiums? What are the facts and what do we know about the impact of sports stadia on economic development and urban revitalization? The overwhelming evidence is that the public use of tax dollars for a sports stadium is economically inefficient and a bad investment that produces no real net economic benefit to a community. In short, giving money to building stadia is simply sportsfare—welfare for sports.

In general, as one surveys local debates about stadium construction in the United States, three basic arguments are employed to support using public money to build sports stadia. First, proponents claim that building a new stadium will have a big impact on the economy, generating many new jobs and bringing new businesses to the area. However study after study has demonstrated that advocates of public spending on stadia consistently exaggerate the benefits of sports to a local economy.

A 1996 Congressional Research Service (CRS) report, “Tax-Exempt Bonds and the Economics of Professional Sports Stadiums” concluded that sports stadia represent a small percentage (generally less than 1%) of a local economy. It also stated that there is little real impact or multiplier effect associated with building sports stadia. By that, if one looks at the economic impact of the dollars invested in sports stadia, the return is significantly smaller than compared to other dollars invested in something else. Moreover, the building of stadia merely transfers consumption from one area or one type of leisure activity to another, and that overall, sports and stadiums contribute little to the local economy and instead represent an investment that costs the public a lot while failing to return the initial investment. Dollar for dollar, the opportunity costs of investing in sports stadia is a terrible option if the goal is economic development, job development, or producing new economic development in a community. In short, the nearly $3 billion in sports subsidies it documented produced little, at the cost of over $120,000 per job.

Literally hundreds of other studies and books by individuals such as long-time sports economists Arthur T. Johnson in Minor League Baseball and Economic Development (1995), Mark Rosentraub in Major League Losers (1997), Kenneth Shropshire in The Sports Franchise Game (1995), and Roger Noll and Andrew Zimbalist in Sports, Jobs, and Taxes (1997), and Michael N. Danielson in Home Team (1997) reach the same conclusion—public support of professional and minor league sports is a bad investment. In practically none of the cities these studies examined did new sports stadia lead to any significant new private investment or provide for any significant economic benefits to the local economy besides the jobs generated by the initial capital construction of the stadia. More importantly, the new stadia generally were not even profitable or self-financing.

Nor could cities point to rising land prices or economic development in the surrounding community. Even as tourist attractions, the stadia either simply transferred sales from somewhere else, failed to demonstrate that the local hotels were filled as a result of the sports events. Finally, in terms of the much ballyhooed job production, outside of initial construction and the salaries for the players themselves, part time, seasonal, and no benefit beer and peanut sales jobs were the fare for what the billions of public dollars produced.

A second claim to support public investment in a stadium is that keeping a sports team is necessary to ensure that one remains a first class city. Would the Twin Cities of Minneapolis and St. Paul (which the State Legislature voted in 2006 to authorize a sales tax worth upwards of $300 million for a new stadium) or any city be any worse off by losing a sports team? Without a sports team, most cities would still have parks, museums, zoos, arts facilities, good neighborhoods, schools, and the general quality of life that separates first and second class cities from one another and suburbs.

Moreover, if one accepts this logic of sports being necessary to make a city first class, can we say that New York City became second class when the Giants and Dodgers fled for California in the 1950s, or that Los Angeles became second class when it lost the Angels to Anaheim or the Rams to Saint Louis? The answer is obviously no.
Professional sports are only one small piece of what makes a city first class. Moreover, professional sports are also only a small part of the local entertainment puzzle with many consumers often transferring their consumption to other forms of entertainment, including amateur sports, if pro sports are not available. Similarly, sports are even a smaller piece of the local urban economic pie such that its presence or absence is not significant in the face of other features in a thriving and diverse urban area. In addition, with the cost of attending sports events so high, often approaching or exceeding $200 per game for a family of four, many sporting events are no longer an affordable family entertainment option. Instead, sports owners look to other corporate interests to buy tickets, thereby making sports an aspect of a city’s first class status that is beyond the reach of most of its residents.

Finally, advocates for a publicly-funded stadia say that such funding is necessary to maintain owner’s profits. The issue here is not profitability, but the level or amount of profits the owners want. They want to make more money and who is to blame them for that desire. However, there are a couple of different issues here. First, many owners say that larger stadia with more seats are necessary if they are to make more money. To support that, owners often trot out attendance figures to show declining profits.

Attendance figures tell only part of the story since they are only a small part of the revenue stream for owners. Revenue from luxury sports boxes, corporate sponsorship and ads, television and radio contracts, and promotions make up a far bigger and more profitable part of what owners receive from their sports adventures. Yet even this money is not enough because owners often claim they are not making as much money as other owners and thus, building a new stadium is a key to upping their profits. Clearly the end result of this “keeping up with the Jones” logic is to constantly push up the average profitability of all sports teams such that there will always be some teams below the average demanding financial assistance.

Overall, while communities may choose to invest in sports facilities because of the cultural amenities they offer, doing so for economic development reasons is another stupid public policy and political myth that deserves to die.

The economic case for public subsidies for sports stadiums is simply another political myth and a stupid public policy idea that is constantly recycled and never dies. In future posts I will discuss other stupid public policies and political myths that cost taxpayers money.

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