April 30, 2008
Public Funding of Sports Stadiums
Since 2000, 28 new major league1
stadiums have been built costing over $9 billion dollars. More than half, over
$5 billion, of the costs of the new stadiums were funded using public dollars.2 In Utah, 4 stadiums have been
built since 1991 costing $386 million in today’s dollars, $200 million (in
today’s dollars) of that total was paid out of the coffers of Utah cities, Salt
Lake County and the State of Utah.3 Across
the nation, franchises have argued that building a new stadium will lead to
economic development in the form of increased incomes, jobs and tax revenues.
However, the preponderance of academic research has disputed these claims. This
article looks at the benefits and costs of building a stadium and discusses why
the economic development argument has failed to stand up to academic scrutiny.
Stadium seeking franchises are now shying away from making economic development
claims in light of the strong research findings. Franchises are able to make
quality of life arguments and, given the monopoly power of the major sports
leagues, cities are responding by competing for a limited number of franchises
by offering to fund stadiums.
Public Ownership of
Stadiums has increased over time
Since the 1970s changes in professional sports have led to
an increase in publicly funded stadiums.
Growing costs in the form of player free agency and changes in the tax
code left team owners looking for ways to increase revenues in order to
maintain the returns on their investments in professional sports team franchises.4 One of the most effective
ways to increase revenues is to invest in a new grand stadium with luxury boxes
and elaborate concessions. Benefits to a city of building a stadium have become
almost synonymous with the benefits of having a sports team because, for most
cities, the cost of not providing public funding for a new stadium is losing
the team to another city. As a result, two thirds (66%) of teams in the NFL,
NBA, MLB, NHL and MLS are playing in stadiums built or significantly renovated
since 1990—with 28% built or significantly renovated since 2000.
Sports Stadiums in
Three sport stadiums have been built in the Salt Lake
Metropolitan area since the 1990s and the Real Salt Lake Stadium is currently
under construction. Stadiums are typically built with a combination of private
and public dollars. Municipalities generate dollars by issuing bonds that
anticipate an increase in the future stream of tax revenues: property taxes
from a redevelopment agency, transient room taxes or general fund revenue from
a variety of taxes.
Benefits of Public
Funding of Sports Stadiums
- Franchise owners profits
- Job creation and increased incomes
- Tax revenue increases
- Consumer surplus
- Fan happiness
- Civic pride
Costs of Public
Funding of Sports Stadiums
- Opportunity cost of public dollars
- Substitution effect
- Compensating differentials
- Productivity decline
- Non-fan inconvenience
Can the Costs and
Benefits be Measured?
Often franchises or local chambers of commerce hire economic
consulting firms to estimate the economic benefit to a metropolitan area. These
studies tend to find positive benefits in terms of the jobs created: personal
income increases and tax revenue growth associated with the construction and
operation of the new stadium. In response to the recent growth in public
subsidies of sports stadiums, many independent, academic economists have also
studied the effect on economic growth. The academic literature on the economic
benefits of sports stadiums concludes that there is no economic growth
associated with professional sports franchises and stadiums.5-12
Because of the preponderance of evidence against the
economic development argument, more recent stadium requests by franchises have
focused on the quality of life arguments to justify public expenditure.6 The quality of life
justifications have not been subject to academic scrutiny, likely because they
are extremely difficult to measure.
There is no reason to assume that the quality of life outcomes are not
large enough to justify the public expenditure.
In the last 20 years, billions of public and private dollars
have been spent building sports stadiums across the United States. Proponents of a new stadium often cite
economic development benefits that will be associated with the new
stadium. Academic economists have not
found statistically significant relationships between various measures of
economic growth and stadium construction.
The academic studies probably better capture the effects of a stadium
because they are not subject to a number of errors that often occur in the
economic development assessments done by pro-stadium advocates. However, throwing out the economic
development argument does not necessarily lead to rejecting public spending on
stadiums. Quality of life arguments may
justify public subsidizing a sports facility.
See the full report.
1. Major league sports include Major
League Baseball (MLB), the National Basketball Association (NBA), the National
Football League (NFL), and the National Hockey League.
Facility Reports. 2007, National Sports Law Institute, Marquette
3. Energy Solutions Arena, Franklin Quest
Field, the E-Center and the Real Salt Lake Stadium.
4. Bernstein, M.F., Sports stadium boondoggle. Public
Interest, 1998(132): p. 57.
5. Rappaport, J. and C. Wilkerson, What are the Benefits of Hosting a Major
League Sports Franchise?, in Economic
Review. 2001, Federal Reserve Bank of Kansas City: Kansas City.
6. Delaney, K.J. and R. Eckstein, Public Dollars, Private Stadiums: The Battle
Over Building Sports Stadiums. 2003, New Brunswick, NJ: Rutgers University
7. Noll, R. and A. Zimbalist, The Economic Impact of Sports Teams and
Facilities, in Sports, Jobs and Taxes,
R. Noll and A. Zimbalist, Editors. 1997, Brookings Institution Press:
8. Baade, R.A. and R. Dye, The Impact of Stadiums and Professional
Sports on Metropolitan Area Development. Growth and Change, 1990. 21(2): p.
9. Baim, D., The Sports Stadium as a Municipal Investment. 1992, Westport, CT:
10. Baade, R.A., Professional Sports as Catalysts for Metropolitan Economic Development.
Journal of Urban Affairs, 1996. 18(1): p. 1-17.
11. Coates, D. and B.R. Humphreys, The Growth Effects of Sport Franchises,
Stadia, and Arenas. Journal of Policy Analysis & Management, 1999. 18(4):
12. Coates, D. and B.R. Humphreys, The Stadium Gambit and Local Economic
Development. Regulation, 2000. 23(2).