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Dumb and dumber: The folly of taxpayer handouts for professional sports

Gov. Mark Dayton wants funding for a new Vikings stadium and bonding for a new St. Paul Saints Stadium. Mayor R.T. Rybak wants money for the Target Center.

Gov. Mark Dayton wants funding for a new Vikings stadium and bonding for a new St. Paul Saints Stadium. Mayor R.T. Rybak wants money for the Target Center. All told, the taxpayer or public support for these projects is well in excess of $1 billion.

Should we do it? Are these subsidies good economic development tools? The simple answer is no.

American public policy is cloaked in many myths. There are many ideas recycled from government to government over time with little thought given to the evidence supporting their empirical assumptions or their prospects for success. Like bad meals that repeat on a diner, or a vampire who never dies, these ideas too are recycled and never seem to go away. This is the case with public subsidies for professional sports teams. While it makes no sense to provide bailouts to sports billionaires in general, doing so when Minnesota is $6.2 billion in the hole and it has other pressing needs is even dumber.

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 for new stadiums? What are the facts and what do we know about the impact of sports stadiums 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 stadiums is simply sportsfare — welfare for sports.

Three basic arguments are used
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 stadiums. 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 stadiums 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” (Zimmerman 1996) concluded that sports stadiums represent a small percentage (generally less than 1 percent) of a local economy. It also stated that there is little real impact or multiplier effect associated with building sports stadiums. By that, if one looks at the economic impact of the dollars invested in sports stadiums, the return is significantly smaller than compared to other dollars invested in something else.

Moreover, the building of stadiums merely transfers consumption from one area or one type of leisure activity to another, and 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 stadiums 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.

Same conclusion: a bad investment
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), 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 stadiums 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 stadiums. More important, the new stadiums 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 stadiums either simply transferred sales from somewhere else or 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.

The first-class-city argument
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 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 publicly funded stadiums say that such funding is necessary to maintain owners’ 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 stadiums 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.

A never-ending push
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.

Moreover, professional sports is free enterprise. It is about competition and winning and losing. It is about private initiative and not public handouts. If teams cannot make it on their own, then they should move or close down — much as any other business would.

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.

It makes no sense to spend Minnesota tax dollars on professional sports handouts. This is just dumb and dumber.

David Schultz is a professor at Hamline University School of Business, where he teaches classes on privatization and public, private, and non-profit partnerships. He is the editor of the Journal of Public Affairs Education (JPAE). Schultz blogs at Schultz’s Take, where this article first appeared.