An Economics 101 lecture on supply and demand tells you all you need to know about why sports facilities often are heavily financed with public money.
The supply of teams is restricted by leagues while the demand for teams by cities exceeds the supply. Hence, teams often command the bargaining leverage when it comes to facility financing negotiations.
When this is coupled with a belief — however misguided and uninformed — that teams and stadiums are economic juggernauts for their local communities, one sees why so many sports facilities have been financed with public money.
Cities are sometimes motivated by fear as well. The fear of losing a team threatening to leave is very real when you consider the history of relocations in the NFL. Baltimore to Indy, Cleveland to Baltimore, St. Louis to Arizona, Los Angeles to St. Louis, and Houston to Nashville are just some of the franchises that moved away because a new home awaited elsewhere.
Ironically, the damage in community and civic pride that stems from losing a team over stadium issues is perhaps more expensive in terms of lost marketing opportunities for the city rather than the financial losses realized by local businesses that profit from pro sports.
Whether public investments in a new football stadium will eventually reap greater benefits than the public expense incurred is truly an empirical question that cannot be answered even 5 years into the new facility’s life span. That said, there are several factors that influence the likelihood of achieving net financial returns to such investments.
● Facility flexibility. Cowboys Stadium and Lucas Oil Stadium are extremely attractive because they can host a variety of events (e.g. football, concerts, conventions, other professional and amateur sporting events) that maximize the usefulness of the facility while enabling the community to attract a greater percentage of non-local visitors whose spending infuses new money into the community — which is the true lifeblood of real economic impact and return on investment.
● Facility location. Those built in isolated regions with no connection to other urban revitalization efforts are less likely to generate ancillary economic development. Facilities located closer to places where locals work, eat, or play have a better chance to further redirect local spending toward the neighborhood where the facility is located.
So for any community considering whether to build a facility with public financing, whether the venture becomes a tight-spiraling touchdown or a fluttering Hail Mary in terms of economic development really is a function of location, functionality and aesthetics.
The more events you can host, the more desirable the location you select, the easier it is commute to the facility, and the more amenities contained within and nearby the facility, the greater chance a region stands to gain favorable returns to public investments.
Patrick Rishe is director of consulting firm Sportsimpacts and associate professor of economics at Webster University in St. Louis.
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