Professional Sports and the Lack of Local Economic Payoffs

Professional Sports and the Lack of Local Economic Payoffs

Professional Sports and the Lack of Local Economic Payoffs

The allure of hosting a professional sports team often sparks dreams of economic prosperity for cities and regions.

As the years unfold, an increasing body of evidence suggests that the promised economic benefits of hosting such teams may not be as substantial as once believed

The economic evidence on this point is pretty clear: such subsidies can transfer how people spend their entertainment dollars from one area of a city to another, but the net gain to an urban area is probably negative. John Charles Bradbury, Dennis Coates, and Brad R. Humphreys review the evidence in “The impact of professional sports franchises and venues on local economies: A comprehensive survey (Journal of Economic Surveys, September 2023, 1389-1431). The authors write:

Between 1970 and 2020, state and local governments devoted $33 billion in public funds to construct major-league sports venues in the United States and Canada, with the median public contribution covering 73% of venue construction costs. The prevalence of subsidized sports stadiums and arenas spawned an active economics literature evaluating their efficacy at stimulating economic activity. This literature contains near-universal consensus evidence that sports venues do not generate large positive effects on local economies. … However, this literature expanded considerably since the last comprehensive literature survey. We survey the extensive academic literature on the economic impacts of sports teams and venues on local communities, which includes more than 130 articles and spans more than 30 years, most published in the past decade. We document the presence of a clear consensus in the results reported in this literature.

Many of us sports fans know that when we attend a game, nearby restaurants, bars, and parking lots are often doing a good business–of course along with economic activity in the venue itself. How do we reconcile this evidence of our own eyes with the economic studies? As Bradbury, Coates, and Humphreys write:

Robust empirical findings documenting the impotence of professional sports in local economies likely reflect a simple theoretical explanation: consumer spending on sports represents a transfer from other local consumer spending, not net-new spending. Although sports games attract some nonlocals to spend money in the area, these visitors also crowd out other tourists attracted to other consumption amenities common to major US cities. Even with the presence outside visitors attracted by sports events, most consumer spending in and around pro sports venues derives from local residents; therefore, the opportunity cost of local sports consumption falls primarily on other competing local businesses, such as movie theaters, restaurants, and retail shopping. Most spending on game tickets, concessions, and associated hospitality near a sports venue would have occurred in other parts of the host jurisdiction without the presence of a pro sports team. Sports-related spending largely reflects a redistribution of existing spending by residents rather than increased local spending.

Any added spending from visitors attending games tends to be concentrated in certain sectors in the local economy and in locations that may not bear the full tax burden generated by subsidies. In addition, the influx of consumers also generates local nuisance or congestion externalities in the form of traffic, crowds, noise, litter, and crime, which may mitigate any positive economic effects. Furthermore, there is no obvious reason to expect income or employment multipliers from
sports spending to be greater than those for other types of local consumption spending that are crowded out; thus, the consistent empirical findings of insubstantial tangible economic impacts from professional sports teams and venues conform to theoretical expectations.

When the economic evidence is against you, then you (in this case, me) argue about noneconomic benefits. Economists sometimes refer to “nonuse benefits.” Even if I haven’t attended a game in a few months (and a combination of limited time and high ticket prices means that I don’t see a lot of games in person), I still enjoy reading and hearing about the games. The local newspaper probably devotes more space to sports coverage than to international news. During my commute, I often listen to local sports-talk radio stations. I sometimes watch games on television. Talking about weather and sports is often an easy and noncontroversial conversation opener.

Some economists have tried to estimate these kinds of “nonuse benefits” using sophisticated survey data: a common finding is that the social benefits are about 15% of the facility construction costs–not nearly enough to justify the level of public subsidies.

Another argument involves whether a new stadium increases property values in the area around the stadium. The evidence here is not clear-cut, but a rough summary would be that in suburban areas, a new stadium often decreases local property values (households and firms don’t necessarily want to be near the stadium), while a new stadium in an urban area can sometimes increase local property values. In interpreting these kinds of results, it’s important to remember that big events also tend to bring traffic jams, noise, and even a rise in crime, so if you’re not a fan, you have no advantages to balance against the disadvantages.

Of course, all of this raises a paradox: If public subsidies for stadiums don’t pay off, why do they keep happening? There are two possible answers here. One is that stadium subsidies arise from an unholy mixture of loudly represented special interests, empire-building local officials, and the threat that a team can move away. The result is a kind of arms race, where cities know they would be better off if they were all to limit these subsidies, but few individual cities are willing to do so on their own. It’s a dynamic that’s similar to colleges and universities all building certain facilities or having certain kinds of offices because everyone else is doing it. It’s also similar to the dynamic where places offer unsuitably large tax breaks or subsidies to a big company who promises to move to a certain area.

The other possible answer is that the economic studies aren’t capturing something important about the role of sports teams in the portfolio of entertainment activities in a metro area. For example, maybe certain employers and their employees want to be in the kind of city where stuff happens. After all, stadiums are often used for non-sports events: concerts, trade shows, monster trucks, whoever-on-ice, and others. If your metro area didn’t have a football stadium, you were not going to get a visit from Taylor Swift.

From this perspective, the insight that subsidies for sports stadiums are often too high doesn’t necessarily imply that no subsidies at all are justifiable. Perhaps some of the answer is for at least some urban areas to negotiate harder for lower subsidies–and thus to help set a precedent of lower subsidies that can be followed by others.

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Timothy Taylor

Global Economy Expert

Timothy Taylor is an American economist. He is managing editor of the Journal of Economic Perspectives, a quarterly academic journal produced at Macalester College and published by the American Economic Association. Taylor received his Bachelor of Arts degree from Haverford College and a master's degree in economics from Stanford University. At Stanford, he was winner of the award for excellent teaching in a large class (more than 30 students) given by the Associated Students of Stanford University. At Minnesota, he was named a Distinguished Lecturer by the Department of Economics and voted Teacher of the Year by the master's degree students at the Hubert H. Humphrey Institute of Public Affairs. Taylor has been a guest speaker for groups of teachers of high school economics, visiting diplomats from eastern Europe, talk-radio shows, and community groups. From 1989 to 1997, Professor Taylor wrote an economics opinion column for the San Jose Mercury-News. He has published multiple lectures on economics through The Teaching Company. With Rudolph Penner and Isabel Sawhill, he is co-author of Updating America's Social Contract (2000), whose first chapter provided an early radical centrist perspective, "An Agenda for the Radical Middle". Taylor is also the author of The Instant Economist: Everything You Need to Know About How the Economy Works, published by the Penguin Group in 2012. The fourth edition of Taylor's Principles of Economics textbook was published by Textbook Media in 2017.

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