Sports Facilities, Economic Development, and Public Policy

Oct 28, 2019

By Dr. David Swindell, Director

Center for Urban Innovation

School of Public Affairs

Arizona State University

 

Sports has been tied to public policy from time immemorial, whether they’ve taken the form of the Olympics in Ancient Greece, gladiatorial games of the Roman Empire, or countless other examples from around the world and throughout time. This is no less the case today.

But the world’s fixation on sports of all kinds currently confronts a significant fiscal challenge for states and localities. Sports subsidies sold on the grounds of economic development are false promises. Sports subsidies sold on civic pride and community identity are another matter, but one with which economists wrestle.

Because of the intimacy and cultural identity so many people derive from the various sports in their regions, public officials often end up making suboptimal policy decisions when faced with opportunities having anything to do with sports. One of the best examples has to do with the near-constant pursuit by team owners seeking public financial support for sports arenas and stadia.

New professional sports facilities are under construction all the time. Currently, looking at only the top level of the five main American sports (baseball, basketball, football, hockey, and soccer), there are numerous new facilities that have already broken ground with a combined price tag of over $10 billion, much of which includes taxpayer support in some form. Some examples include:

  • MLB Texas Rangers’ Globe Life Field ($1.1  billion, 50% of which is public)
  • NFL Las Vegas Raiders’ stadium ($1.9 billion, 40% of which is public)
  • MLS Nashville Soccer Club stadium ($335 million, 75% of which is public)

But the champion of them all is the new SoFi Stadium in Inglewood that will be home to both the NFL LA Rams and NFL LA Chargers and will cost an estimated $5 billion, far exceeding the previous title-holder.

SoFi Stadium highlights an array of nuances that have evolved when it comes to public contributions to the financing of sports arena. Despite the fact that many observers have touted the facility as being privately financed, there are hard-to-see public contributions built into deal. For example, the city will only recoup limited taxes and the team would keep the rest for “eligible costs,” such as infrastructure and police costs for event days.

The truth is that the up-front financing receives the bulk of media attention and debate by policy makers. But it may not be the most important part of the deal. Rather, the important elements to watch are how the revenues generated by the facility are divided up among the beneficiaries, including the entity that provides the up-front financing. In fact, in during the 1960s and into the 1980s, completely publicly financed sports venues were the norm. The difference between then and now is that then the teams paid for use of the facility. Those fees, along with parking and other revenues, went back to the public entity for purposes of paying down the debt incurred for the facility.

Publicly subsidizing sports as a matter of policy raises several thorny issues. At the most fundamental/philosophical level is the question of whether a government agency should be using taxpayer money to subsidize a private market good related to a very healthy industry.

Philosophy aside, there are several other policy-relevant issues that are tangled in debate. First among these is the consistent claim that such sports investments generate significant economic impact. Just as consistent have been the studies that show this not to be the case. There are two main reasons: 1) metropolitan economies are far too large to register a blip for any single construction project like a stadium; and 2) economic impact and economic growth are two different issues. Policy should be focused on growth. Impact involves shifting existing capital flows around in an already-existing local economy. For example, consumers are not likely to take money from their savings in order to attend a new sporting event. More likely, they will opt out of some other entertainment expenditure and substitute it with the sports expenditure, simply substituting money from one entertainment venue in the community to another (what economists refer to as a substitution effect).

Because sports and the new employment associated with a facility are so small relative to the local economy, it is not possible that such facilities can “save” declining downtowns. On the positive side, however, they may be able to redirect existing capital flows from healthy areas to other areas that need such attention. In occasional instances a sports facility can potentially serve as a centerpiece for a larger redevelopment initiative that could help a community. Ultimately, if citizens vote in a referendum or through their elected representatives to allocate scarce public dollars on entertainment and civic pride, it is their decision to make.