The economics of new sports stadiums

Do public subsidies for sports stadiums generate net regional economic benefit?

On the “yes” or “pro” side, Bruce Seaman, an associate professor of economics at Georgia State University, has pointed to the broader positives of public investment in sports and cultural institutions, beyond the numbers. On the “no” or “con” side, Victor Matheson, an economics professor at the College of the Holy Cross in Worcester, Mass., has studied the impacts of mega-events such as the World Cup and Olympics and found them lacking, economically speaking.

In a gentlemanly, sometimes funny exchange, the two agreed to play their parts as adversaries, but they tended to agree on one thing: If sports stadiums do benefit the public pocketbook, it is to a very small degree. Here are highlights of the debate (some remarks have been edited for clarity and space).

Tax financing as seed money

Seaman: Often public money is seed money that generates other private money, and time is of the essence. You often don't have the luxury of saying, we're going to put it in a five-year plan and figure out (how to rank) these projects. I am sensitive to that, but in reality it … is a (recipe) for paralysis. No doubt, the burden of proof has to be on anyone claiming that public tax financing should be involved at all. But I don't believe that studies uniformly show that there is zero (impact).

Remember, many of these facilities actually end up being owned by the public sector. At least when you own the facility, you get some rent money back. As in the case of Turner Field, the city is able to sell that. There will be some benefit back to the city. You have to be reasonable about this. If you are opposed to private/public involvement, you’d have to be opposed to the Beltline, the Aquarium. Just think of the implications of that.

Hotel/Motel taxes

Matheson: One place I clearly disagree with Bruce is this concept of hotel/motel taxes. It's very common for politicians to say, hey, let's finance our stadium through rental-car taxes, because other people are paying that. Let's finance this on hotel taxes — that's a professor coming in from Boston to be in a debate. Let's figure out things that other people are paying for to pay for a stadium, and then it's like we get a stadium for free. The real problem with that is, you could always use hotel taxes to pay your teachers, your firefighters and police officers. You could build your local roads with hotel taxes. This idea that you must put hotel taxes towards a stadium I think is a wrong one. I'm comfortable taking a no-sports-subsidy stand because the number of examples of bad things happening so widely exceeds the number of things where we have some good outcomes.

Remember, sports teams are not in the business of local economic development. They’re in the business of generating as much revenue as possible. The way you generate revenue is not by creating a neighborhood of bars and restaurants where people can go before and after the game. The way you make money is to make sure that anyone who (comes to your) stadium is spending all their money inside.

Positive byproducts of sports

Seaman: Almost everybody understands what it's like to be in a city that's somewhat unified amid all the discord by their teams doing better. In general, there are these benefits that to an economist are somewhat legitimate and, in fact, can sometimes be measured. Should we factor in something unique about what sports creates in consumption value? Sports does have some unique features. I think the arts, as well, have an element about this that should not be ignored. Frequently, the effects that are really dramatic and very beneficial are within a region. We are finding an actual bump, but we're also finding a bump that is a fraction of what's often claimed.

Matheson: My research into the direct economic impact of franchises, stadiums and mega-events suggests that the economic impacts of these sports tend to be small, a fraction of what is typically claimed. That being said, we do have some evidence that sports makes us happy. With the World Cup in Germany in 2006, we had evidence of a small positive economic impact in terms of visitor days and tourist spending, but really very small. What we did see very significantly is that the self-reported happiness of Germans was much higher after the event than before the event. And I think we have some good history to suggest that the world's a better place with a lot of happy Germans than a lot of angry ones. So we do have some evidence that sports makes us happy, but we don't have much evidence that it makes us rich.

The final word

Seaman: My position is that there has been no argument made by economists that somehow proves that public/private partnerships to create cultural infrastructure and stadiums have to be a loser. Have there been horrible deals cut? Absolutely. I think it's a matter of looking at it case by case. When you look at this as an investment,the arguments being made are really part of a broader issue: whether or not there's a role for public-sector financing for projects that can range from aquariums to the Beltline, park projects and streetcar projects. I think we all agree that the potential for abuse is very serious. But you don't want to take a kind of principled ideological position that says this is somehow a totally inappropriate role for the public sector to play, if the public sector money can be used as seed money for further private-sector investment, especially when you talk about some of the inner-city things. Both the Braves and the Falcons are making serious efforts to have (positive) neighborhood effects.

Matheson: What's happened over the last 25 years is that economists not associated with the leagues or local chambers of commerce — and I'm one of these — will look at any economic variable we can get our hands on. We try to look at things like GDP, personal income, taxable sales, employment or unemployment, hotel occupancy. We try to see if the presence of mega-events, and whether the presence of new stadiums, of new franchises, actually causes a discernible bump in the amount of economic activity. By and large, these studies find that the economic impact associated with sporting events is either zero or very small, or not discernibly different from zero.

As a rule of thumb, an economist like me would say this: Take whatever (economic impact figures) the supporters are telling you, move the decimal point one place to the left, and that’s a pretty good estimate. The economic impact is a fraction of what’s claimed, and if the economic impact is a fraction of what is claimed, then the amount of public subsidy that’s justified putting into facilities like this is probably a fraction of what’s being asked for.